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Fannie Mae transfers more risk to insurers with sixth CIRT deal 

The agency this year so far has purchased coverage of up to $4.9 billion for potential loan-related losses

Fannie Mae has executed its sixth Credit Insurance Risk Transfer (CIRT) deal of 2022, providing up to $725 million in mortgage-risk coverage as part of the agency’s ongoing effort to share risk with private-sector insurers.

CIRT 2022-6 involves a covered loan pool composed of 63,000 single-family mortgages with a total unpaid principal balance of about $19.3 billion. The loans in the pool are fixed-rate mortgages with primarily 30-year terms and loan-to-value ratios ranging from 60.01% to 80% that were acquired by the agency between August and September 2021, according to Fannie’s statement announcing the deal.

With CIRT 2022-6, effective as of May 1, Fannie Mae will retain risk for the first 55 basis points of loss on the $19.3 billion loan pool. If that $106.3 billion retention layer is exhausted, then the 24 insurers and reinsurers that are party to the transaction will cover the next 375 basis points of loss on the pool, up to a maximum of $725 million.

“Since inception to date, Fannie Mae has acquired approximately $19.9 billion of insurance coverage on $675.9 billion of single-family loans through the CIRT program,” Fannie Mae states in the announcement of the latest CIRT deal. 

Through the CIRT transaction, a portion of the credit risk on mortgages backed by Fannie Mae is shifted to insurers in the private sector. The agency pays monthly premiums in exchange for insurance coverage on a portion of the designated reference loan pools.

CIRT offerings 1, 2, 3, 4 and 5 — executed this year — each work similarly to CIRT 6 by transferring hundreds of millions of dollars of mortgage credit risk to the private sector. 

In total the six CIRT deals so far this year, after Fannie’s retention layer is tapped, provide insurance for potential losses on the covered loan pools up to a maximum of some $4.9 billion. The covered mortgage loan pools in the six transactions include a total of some 459,000 mortgage loans valued at $139.3 billion — based on a tally of the announced CIRT deals.

In comments made at a recent Mortgage Bankers Association convention in New York, Sandra Thompson, the newly confirmed director of the Federal Housing Finance Agency (FHFA), made clear that credit-risk transfer transactions, including through the CIRT program, will be a critically important part of the GSEs strategy under her oversight.

“I wanted to make sure that we got our capital treatment for CRT right, so we issued, or we re-proposed … aspects of the [overall] capital rule,” Thompson said at the MBA event. “We made a change [recently finalized], and now the capital rule for the enterprises has favorable treatment of CRT, which we think is the right way to go because Fannie Mae and Freddie Mac are the largest owners of credit risk.”

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