Fannie Mae Continues Credit Risk Sharing Innovations with Two Reinsurance Transactions

For the First Time, Fannie Mae Completes Direct Deal with a Multi-Line Insurer

Callie Dosberg

202-752-3117

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 two deals, CIRT 2015-4 and CIRT 2015-5, shift credit risk on pools of single-family loans to both an insurer and reinsurers. For the first time since the program’s inception, Fannie Mae has completed a transaction directly with a multi-line insurer through CIRT 2015-5, allowing for greater capacity to shift credit risk to private capital. Also for the first time, the covered loan pools for the CIRT 2015-4 and 2015-5 transactions consist of 30-year fixed rate loans with only loan-to-value (LTV) ratios greater than 80 percent. The loans were acquired by Fannie Mae from September through December of 2013 and April through December 2014. In these two deals, the combined unpaid principal balance (UPB) on the reference loans is also larger than previous CIRT deals, with the total UPB at just over $12 billion.

“Through our issuance of Connecticut Avenue Securities^™ (CAS^™) and execution of Credit Insurance Risk Transfer transactions, Fannie Mae is leading the credit risk transfer market. Our CIRT program continues to grow, as interest from participating reinsurers is reinforced by Fannie Mae’s strong credit risk management approach, the increasing familiarity and simplicity of our transaction structure, and the opportunity to gain exposure to recent vintage U.S. mortgage credit risk,” said Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae. “Through CAS and CIRT, we have been sharing risk on approximately 90 percent of the 30-year fixed rate loans that we have recently acquired, with loan-to-value ratios in excess of 60 percent and not originated under the Home Affordable Refinance Program.  With our commitment to build market liquidity and share risk, we continue to expand our reinsurer and insurer partners, complementing Fannie Mae’s other credit risk transfer efforts.”

Through these latest deals, Fannie Mae has acquired more than $800 million of insurance coverage on over $32 billion of loans this year with five CIRT transactions, and nearly $1 billion of coverage on over $38 billion of loans since the program's inception in 2014.

In CIRT-2015-4 which became effective October 1, 2015, Fannie Mae retains risk for the first 50 basis points of loss on a $7.4 billion pool of loans. If this $37 million retention layer were exhausted, reinsurers would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $185 million. With CIRT-2015-5 which also became effective October 1, 2015, Fannie Mae retains risk for the first 50 basis points of loss on a $4.9 billion pool of loans. If this $24 million retention layer were exhausted, the insurer would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $121 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 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. 

By the end of 2015, Fannie Mae anticipates it will have transferred a portion of the credit risk on approximately half a trillion dollars in single-family mortgages through all of its credit risk transfer efforts, including CIRT, 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.