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Press Release

Fannie Mae Announces First Front-End Credit Insurance Risk Transfer Transaction

October 21, 2016

Deal Will Shift a Portion of the Credit Risk on Approximately $3.7 Billion of Single-Family Loans

Pete Bakel


WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that the company has secured commitments for a new front-end Credit Insurance Risk Transfer™ (CIRT™) structure to be executed with affiliates of approved mortgage insurance (MI) companies. Upon completion, the pilot will be the first Credit Insurance Risk Transfer transaction done on a “flow” basis. This means the risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans, and that the insurance coverage will be effective as soon as the loans are acquired. The loan pool is expected to be filled over the course of six months beginning with fourth quarter 2016 deliveries.

The transaction will shift a portion of the credit risk on pools of single-family loans with a combined unpaid principal balance (UPB) of approximately $3.7 billion to a group of mortgage insurance affiliates. The covered loan pool will consist of 30-year fixed-rate loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent.  Each covered loan will already have primary mortgage insurance that meets Fannie Mae standards, and the additional coverage provided by CIRT FE 2016-1 will insure losses, subject to the aggregate limit of liability, above what is already covered by the primary mortgage insurance.

Fannie Mae plans to continue offering its traditional CIRT transactions that cover existing loans in its portfolio.

“This innovative pilot transaction represents another milestone for Fannie Mae’s risk transfer initiative. Front-end CIRT expands the options that Fannie Mae can use for transferring mortgage credit risk away from taxpayers, while tapping a diverse source of capital and risk-sharing partners,” said Rob Schaefer, Fannie Mae’s vice president for Credit Enhancement Strategy & Management. “Through our partnership with several approved mortgage insurers and their affiliates, we are able to bring to market a new structure that leverages the enhancements that were pioneered in our existing CIRT program, including a streamlined operational process, improved certainty of coverage, and enhanced counterparty protections.”

In the pilot transaction, Fannie Mae will retain risk for the first 35 basis points of loss on a pool of loans of approximately $3.7 billion. If this approximately $13 million retention layer is exhausted, the participating MI affiliates will cover the next 265 basis points of loss on the pool, up to a maximum coverage of approximately $98 million.

Coverage for these deals will be provided based upon actual losses for a term of 10 years. Depending upon the pay-down of the insured pool and the principal amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the two-year anniversary and each anniversary of the effective date 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.

Since 2013, Fannie Mae has transferred a portion of the credit risk on over $760 billion in single-family mortgages, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities (CAS), and other forms of risk transfer. 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

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