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Fannie Mae transfers risk on $22B in single-family loans

Both loans acquired from October 2017 through March 2018

Fannie Mae recently announced it completed its fourth and fifth Credit Insurance Risk Transfer transactions, transferring risk on $22 billion in single-family loans.

The two deals, CIRT 2018-4 and CIRT 2018-5, are part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. Currently, the company has acquired about $6.9 billion of insurance coverage on $278 billion of loans through its CIRT program.

Fannie Mae Vice President of Credit Enhancement Strategy and Management Rob Schaefer said the new transactions transferred $663 million of risk to seventeen reinsurers and insurers, representing the largest risk transferred in a single CIRT transaction set.

 “We continue to see strong and growing interest in our CIRT program,” Schaefer said. “Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions.”

The two pools contain fixed-rate loans with ratios of at least 60% and up to 80% with original terms between 21 and 30 years. The company acquired both loans from October 2017 through March 2018.

CIRT 2018-4 became effective on June 1, 2018, and will retain risk for the first 60 basis points of loss on a $19 billion pool of loans. If this $116 million retention is exhausted, reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of $580 million.

Fannie Mae will retain risk for the first 60 basis points of loss on a $2.7 billion pool of loans, for CIRT 2018-5 which also became effective on June 1, 2018. If the $16.5 million retention is exhausted, an insurer will cover the next 300 basis points of loss on the pool, up to a maximum coverage of 82.5 million.

Coverage for these deals is provided based upon actual losses for a term of 10 years. However, depending on the paydown 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 after that. Fannie Mae can cancel the coverage at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.

In March, Fannie Mae completed its first credit insurance risk transfer of 2018, which transferred risk on $16.9 billion in single-family loans.

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