July 26, 2018Fannie Mae Announces Two Credit Insurance Risk Transfer Transactions on $22 Billion of Single-Family Loans
WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has completed its fourth and fifth traditional Credit Insurance Risk Transfer™ (CIRT™) transactions of 2018 covering existing loans in the company's portfolio. The two deals, CIRT 2018-4 and CIRT 2018-5, which together cover $22 billion of loans, are a part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $6.9 billion of insurance coverage on $278 billion of loans through the CIRT program.
"These new transactions transferred $663 million of risk to seventeen reinsurers and insurers, representing the largest amount of risk that we have transferred in a single CIRT transaction set. We continue to see strong and growing interest in our CIRT program," said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. "Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions."
In CIRT 2018-4, which became effective June 1, 2018, Fannie Mae will retain risk for the first 60 basis points of loss on a $19 billion pool of loans. If the $116 million retention layer is exhausted, reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $580 million. With CIRT 2018-5, which also became effective June 1, 2018, Fannie Mae will retain risk for the first 60 basis points of loss on a $2.7 billion pool of loans. If this $16.5 million retention layer is exhausted, an insurer will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $82.5 million.
Coverage for these deals is provided based upon actual losses for a term of 10 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 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.
The covered loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent, and original terms between 21 and 30 years. The loans were acquired by Fannie Mae from October 2017 through March 2018. A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found at http://www.fanniemae.com/resources/file/credit-risk/pdf/cirt-deal-pricing-information.pdf.
Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with unpaid principal balance of over $1.4 trillion, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities™ (CAS), and other forms of risk transfer. As of March 31, 2018, $995 billion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. Depending on market conditions, Fannie Mae expects to continue coming to market with CIRT and CAS deals that allow private capital to gain exposure to the U.S. housing market.
More information on Fannie Mae's credit risk transfer activities is available at http://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/FannieMae.