Fannie Mae Announces its Largest Credit Insurance Risk Transfer Transaction to Date
Two Deals Shifts a Portion of the Credit Risk on $19.5B of Single-Family Loans
WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has completed two Credit Insurance Risk Transfer™ (CIRT™) transactions, successfully continuing efforts to reduce taxpayer risk by increasing the role of private capital in the mortgage market. The deals, CIRT 2016-1 and CIRT 2016-2, shift a portion of the credit risk on pools of single-family loans with a combined unpaid principal (UPB) balance of approximately $19.5 billion to a group of insurers and reinsurers, and represent the largest cumulative CIRT transaction to date. The covered loan pools for the CIRT 2016-1 and 2016-2 transactions consist of 30-year fixed rate loans with loan-to-value (LTV) ratios greater than 60 percent and less than or equal to 80 percent. The loans were acquired by Fannie Mae from December 2014 through April 2015.
“Our CIRT transactions reduce credit risk for Fannie Mae while bringing private capital into the housing market,” said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. “We’re pleased with the success of our credit insurance transactions and plan to continue to pursue additional risk sharing opportunities through CIRT and our Connecticut Avenue Securities™.
Including these latest deals, Fannie Mae has acquired nearly $1.7 billion of insurance coverage on over $66 billion of loans, provided by nine CIRT transactions since the program's inception in 2014.
In CIRT 2016-1, which became effective February 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on an $8.8 billion pool of loans. If this $44 million retention layer is exhausted, reinsurers would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $220 million. With CIRT 2016-2 which also became effective February 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $10.7 billion pool of loans. If this $53 million retention layer is exhausted, an insurer would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $267 million. In both deals, coverage is 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 3-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 5-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 half a trillion dollars in single-family mortgages through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities 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 https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.Fannie Mae enables people to buy, refinance, or rent homes.
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