Fannie Mae Announces its Largest Credit Insurance Risk Transfer Transaction to Date

Three Deals Shift a Portion of the Credit Risk on Approximately $22.5 Billion of Single-Family Loans

Callie Dosberg

202-752-3117

WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has completed three Credit Insurance Risk Transfer^™ (CIRT^™) deals, successfully continuing efforts to reduce taxpayer risk by increasing the role of private capital in the mortgage market. The three deals (CIRT 2016-4, CIRT 2016-5, and CIRT 2016-6) represent the largest cumulative CIRT transaction to date, shifting a portion of the credit risk on pools of single-family loans with a combined unpaid principal (UPB) balance of approximately $22.5 billion to a group of insurers and reinsurers. The covered loan pools for the three transactions consist of 30-year fixed rate loans with loan-to-value (LTV) ratios greater than 80 percent and less than or equal to 97 percent. The loans were acquired by Fannie Mae from December 2014 through December 2015.

“We are pleased that interest from insurers and reinsurers in our CIRT program continues to grow, as demonstrated by our ability to cover this large aggregate pool of loans, and this reflects the confidence that those participants have in Fannie Mae’s strong credit risk management approach,” said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. “We’re making solid progress distributing credit risk to private capital and away from Fannie Mae and taxpayers.”

In CIRT 2016-4, which became effective May 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $9.7 billion pool of loans. If this $48.6 million retention layer is exhausted, reinsurers will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $243 million. With CIRT 2016-5 which also became effective May 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $9.0 billion pool of loans. If this $45 million retention layer is exhausted, an insurer will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $226 million. In CIRT 2016-6, which became effective May 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $3.8 billion pool of loans. If this $18.8 million retention layer is exhausted, an insurer will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $94 million.

Coverage for these deals 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 $656 billion in single-family mortgages 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 https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.