Investments

Fannie Mae transfers risk on $10.5 billion in single-family loans

Marks seventh transaction of 2019

Fannie Mae announced it completed its seventh credit risk transfer of 2019, transferring the risk on $10.5 billion in single-family loans.

The deal, CIRT 2019-4, holds $10.5 billion in unpaid principal balance of 21-year to 30-year original term fixed rate loans. This is part of Fannie Mae’s ongoing effort to reduce risk on taxpayers by increasing the role of private capital in the mortgage market.

To date, this brings Fannie Mae’s totals to about $10.3 billion in insurance coverage on $386 billion of single-family loans.

“As the CIRT program continues to grow and evolve, Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions,” said Rob Schaefer, Fannie Mae vice president for credit enhancement strategy and management. “We are proud to be the leading manager of single-family residential credit risk in the industry, and to have taken a leading role in partnering with private sources of capital in transferring mortgage credit risk, building a market that barely existed even five years ago.”

Fannie Mae will retain the risk on the first 40 basis points of loss on the $10.5 billion pool of single-family loans with loan-to-value ratios greater than 80% and less than or equal to 97%. If the $42 million retention layer is exhausted, fifteen insurers and reinsurers will cover the next 375 basis points of loss on the pool, up to a maximum coverage of about $392 million.

Coverage for these deals is provided based upon actual losses for a term of 12.5 years. 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 month thereafter. The coverage on each deal 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.

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