Investments

Fannie Mae transfers $16 billion in credit risk for last transaction of 2017

Transfers risk on 15- and 20-year mortgages

In the government-sponsored enterprise's last risk transfer of the year, Fannie Mae transferred risk on $16 billion in single-family loans.

Fannie Mae announced Wednesday it completed its ninth final Credit Insurance Risk Transfer of the year, covering $16 billion in existing loans in the company’s portfolio. This transaction is part of the companies effort to reduce the risk to taxpayers by increasing the role of private capital in the mortgage market.

So far, Fannie Mae has acquired almost $5.3 billion of insurance coverage on about $220 billion in loans through its CIRT program.

“This year we have made great progress in expanding the number of active partners writing our CIRT coverage, and increasing the transparency of our program,” said Rob Schaefer, Fannie Mae vice president for credit enhancement strategy and management. “CIRT 2017-7 is our second transaction covering 15-year and 20-year loans, and it attracted a record number of 18 reinsurer participants.”

“As a demonstration of our commitment to transparency, Fannie Mae recently updated our data analytics web tool, Data Dynamics, to provide additional disclosure on the aggregate loan amount in each CIRT and Connecticut Avenue Security transaction potentially affected by the 2017 hurricanes, and posted to our website new commentary and analysis discussing the impact of some past hurricanes on credit performance,” Schaefer said.

CIRT 2017-7 went into effect October 1 of this year, and Fannie Mae will retain the risk of the first 25 basis points of a loss on a $16.3 billion pool of loans. After the $40.7 million retention layer is exhausted, reinsurers will cover the next 125 basis points of loss, up to a maximum coverage of about $204 million.

The coverage for the deals will be provided based on losses for a term of 7.5 years. At the one-year anniversary, and each anniversary of the effective date after that, the aggregate coverage amount can be reduced depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent.

Fannie Mae can cancel the coverage at any point after the four-year anniversary of the effective date by paying a cancelation fee.

The coverage for the loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios of 75% or greater, but less than or equal to 97%. The underlying loans have original terms between 15 and 20 years. Fannie Mae acquired these loans between January 2016 and March 2017.

The company has now transferred a part of the credit risk of single-family mortgages with unpaid principal balance of more than $1.2 trillion through its CIRT and Connecticut Avenue Securities programs since 2013.

While this is the last transfer of 2017, Fannie Mae explained it plans to continue its credit risk programs next year, depending on market conditions.

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