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Fannie Mae announces new front-end credit risk-sharing deal

Deal with insurers provides up to $375 million in coverage

Fannie Mae announced Friday that it executed its second front-end credit risk-sharing deal through its Credit Insurance Risk Transfer program.

Through the CIRT program, Fannie Mae offloads some of the credit risk it holds onto a series of reinsurers.

In this case, the deal will be completed on a flow basis, meaning the risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans and the insurance coverage will be effective as soon as the loans are acquired, Fannie Mae said in a release.

According to Fannie Mae, the coverage and pricing are committed for 12 months, beginning with first quarter 2017 deliveries.

Per Fannie Mae, the CIRT deal will shift a portion of the credit risk on pools of single-family mortgages that carry a combined unpaid principal balance of approximately $15 billion to a group of reinsurers.

The covered loan pool will consist of 30-year, fixed-rate loans with loan-to-value ratios greater than 60% and less than or equal to 80%, Fannie Mae said.

Under the terms of the agreement, Fannie Mae will retain risk for the first 50 basis points of loss on a pool of loans of approximately $15 billion.

If the approximately $75 million retention layer is exhausted, the participating mortgage insurance companies will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $375 million, Fannie Mae said.

“With this transaction, Fannie Mae pioneers new ground by securing the longest and largest forward commitment ever transacted for a GSE risk transfer transaction, locking in our pricing for the full 2017 calendar year,” said Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae. “This deal also demonstrates our continued market leadership by providing a high level of transparency with respect to the deal pricing and structure.”

Fannie Mae added that it plans to continue offering its traditional CIRT transactions that cover existing loans in its portfolio. 

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