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First traditional credit insurance risk transfers of 2017

Fannie Mae announced it completed the first two traditional Credit Insurance Risk Transfer transactions of 2017 covering existing loans in the company’s portfolio.

The two deals, CIRT 2017-1 and CIRT 2017-2, became effective on Feb. 1 and cover $20.4 billion in loans. Fannie Mae announced the deals are part of an ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market.

To date, Fannie Mae acquired nearly $4 billion of insurance coverage on just under $160 billion of loans through the CIRT program.

“These two CIRT transactions transferred $510 million of risk and were met with a record number of participants, which included sixteen reinsurers and insurers,” said Rob Schaefer, Fannie Mae vice president for credit enhancement strategy & management.

“We are pleased with the growing interest in our CIRT program and will continue to take steps to build liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions,” Schaefer said.

In the first deal Fannie Mae retains the risk for the first 50 basis points of loss on the $18.1 billion pool of loans. If this $90 million retention layer is exhausted, reinsurers will cover the next 250 basis points of loss on the pool, up to a maximum coverage of about $452 million.

On the second deal, the GSE will retain risk for the first 50 basis points of loss on a $2.3 billion pool of loans. If this $11.5 million retention layer is exhausted, an insurer will cover the next 250 basis points of loss on the pool, up to a maximum coverage of about $57.5 million.

Fannie Mae explained coverage for these deals is provided based on actual losses for a term of 10 years. Depending on the pay down of the insured pool and the principal amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the one-year anniversary and each anniversary of the effective date thereafter.

Fannie Mae may cancel the coverage at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.

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