Fannie Mae Announces Fourth and Fifth Front-End Credit Insurance Risk Transfer Transactions

Alicia Jones

202-752-5716

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced that it has secured commitments for two new front-end Credit Insurance Risk Transfer^™ (CIRT^™) transactions. These will be the fourth and fifth deals completed on a flow basis, meaning the risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans and the insurance coverage will be effective as soon as the loans are acquired. Coverage and pricing are committed for 12 months, beginning with March 2018 deliveries.

CIRT FE 2018-1 will shift a portion of the credit risk to a group of reinsurers on a pool of 21 to 30-year single-family fixed-rate loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent, with an unpaid principal balance (UPB) of approximately $12 billion. CIRT FE 2018-2 will shift a portion of the credit risk to a group of reinsurers on a pool of single-family fixed-rate loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent, with an unpaid principal balance (UPB) of approximately $8 billion. Fannie Mae plans to continue offering its traditional CIRT transactions that cover existing loans in its portfolio as well.

"Twenty-two separate reinsurers provided coverage on these two front-end CIRT transactions, a record number of risk transfer partners for a single set of Fannie Mae CIRT offerings. The amount of interest shown by reinsurers marks another milestone for Fannie Mae’s risk transfer initiative," said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. "Front-end CIRT continues to stand as an expanded option that Fannie Mae can use for transferring credit risk away from taxpayers while providing certainty of coverage."

In CIRT FE 2018-1, which became effective March 1, 2018, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $12 billion pool of loans. If this $60 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $390 million. With CIRT FE 2018-2, which also became effective March 1, 2018, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $8 billion pool of loans. If this $40 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $260 million.

Coverage for these deals will be provided based upon actual losses for a term of 10.5 years from the effective date. 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 18^th month following the effective date and every month thereafter. The coverage may be canceled by Fannie Mae at any time on or after the 66^th month following the effective date by paying a cancellation fee.

A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found at https://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 more than $1.3 trillion, measured at the time of transaction (including the full contract amount for front-end CIRT transactions), through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities^™ (CAS), and other forms of risk transfer. As of December 31, 2017, $995 billion in outstanding unpaid principal balance of loans in the company's 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 https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html