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Fannie Mae transfers risk on $19.8 billion in single-family loans

Completes second credit insurance risk transfer in 2017

Fannie Mae announced it completed its second set of traditional Credit Insurance Risk Transfer transactions for 2017.

The two deals, CIRT 2017-3 and 2017-4, cover a total of $19.8 billion in single-family loans, and are part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market.

To date, the GSE acquired nearly $4.3 billion in insurance coverage on about $170 billion in loans through its CIRT program.

“The latest transactions of CIRT 2017-3 and CIRT 2017-4 transferred $546 million of risk to 17 reinsurers and insurers, and demonstrate Fannie Mae’s commitment to build liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer executions,” said Rob Schaefer, Fannie Mae vice president for credit enhancement strategy and management.

CIRT 2017-3 became effective on May 1, 2017. Fannie Mae will retain the risk for the first 50 basis points of loss on a $17.7 billion pool of loans. After that, reinsurers will cover the next 275 basis points of loss on the pool, up to a maximum coverage of about $486.2 million.

CIRT 2017-4 became effective at the same time, and Fannie Mae will also retain the risk on the first 50 basis points of loss on the $2.2 billion pool of loans. Once this layer is exhausted, an insurer will cover the next 275 basis points of loss, up to a maximum coverage of about $60.1 million.

Coverage for these deals is provided based upon 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. The coverage may be canceled by Fannie Mae at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.

The loans within the two pools are all fixed-rate with loan-to-value rations of more than 80% and less than or equal to 97% with original terms between 21 and 30 years. Fannie Mae acquired the loans throughout 2016 and 2017.

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