Fannie Mae transfers $771 million in credit risk to private insurers

The coverage encompasses potential losses on a pool of 87,600 fixed-rate mortgages

HW+ Fannie Mae

Fannie Mae this week completed its first credit insurance risk transfer (CIRT) deal of the year as part of the agency’s ongoing efforts to share mortgage risk with the private sector. 

The deal transferred millions of dollars of credit risk to a group of 22 private insurers and reinsurers. That credit risk is tied to a $26.1 billion reference pool of single-family mortgages.

“This credit risk transfer … has increased the role of private capital by transferring $770.7 million of mortgage credit risk to private insurers and reinsurers,” the Structured Finance Association states in a brief about the deal.

The covered loan pool for the transaction, CIRT 2002-1, includes some 87,600 loans with loan-to-value ratios ranging from 60.01% to 80%. As part of the deal, Fannie Mae will retain risk for the first 25 basis points of any loss on the $26.1 billion loan pool.

If that $65.3 million retention layer is tapped, then the 22 insurers and reinsurers will cover the next 295 basis point of loss on the pool, up to $770.7 million. The coverage is based on actual losses over a 12.5-year term.

The aggregate amount of coverage can be reduced at the one-year anniversary of the effective date of the deal, and each month thereafter, depending on the paydown of the loans in the mortgage pool and the principal amount of insured loans that move into serious delinquency. In addition, the coverage can be canceled by Fannie Mae after five years with payment of a cancellation fee.

“CIRT 2022-1 begins a new, active year of CIRT issuance for Fannie Mae,” said Fannie Mae’s vice president of capital markets, Rob Schaefer. “We appreciate our continued partnership with the 22 insurers and reinsurers that wrote coverage for this deal,” 

As of year-end 2021, some $750 billion in Fannie Mae-backed single-family mortgages were included in a reference pool for a credit-risk transfer transaction.

Fannie Mae has been revving up its credit-risk transfer machinery in recent months. The GSE has said it plans to do $15 billion in CRT deals in 2022. In early February, HousingWire reported that Fannie Mae unveiled its second CRT deal of 2022, a $1.2 billion note offering through its Connecticut Avenue Securities real estate investment conduit.

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