Fannie Mae Executes Two Front-end Credit Insurance Risk Transfer Transactions on $40 Billion of Single-Family Loans
Program Continues to Demonstrate Market Leadership and Reduce Taxpayer Risk
WASHINGTON, DC– Fannie Mae (FNMA/OTC) announced today that it has secured commitments for two front-end Credit Insurance Risk Transfer™ (CIRT™) transactions. CIRT FE 2020-1 and CIRT FE 2020-2 together cover up to $39.6 billion in unpaid principal balance of 21-year to 30-year original-term, fixed-rate loans, including loans previously acquired from November 2019 through January 2020 and also loans to-be acquired between February 2020 and January 2021. Combined, these two deals transfer up to $1.3 billion of mortgage credit risk, as part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has committed to acquire approximately $12.9 billion of insurance coverage on $475 billion of single-family loans through the CIRT program, measured at the time of issuance, for both post-acquisition (bulk) and front-end transactions.
"CIRT FE 2020-1 and FE 2020-2 secure approximately $729 million and $600 million of coverage, respectively. Both are record-high levels of coverage for a low and high loan-to-value ratio CIRT transaction. These transactions were executed in March, prior to the enormous changes that have since impacted our economy and our daily lives. We appreciate our partnership with the 20 insurers and reinsurers that wrote coverage for these deals, and hope that they, their co-workers, and families all stay safe during this global crisis. These participating insurers and reinsurers have Fannie Mae's commitment that we will use all of our resources to assist borrowers through temporary hardships related to COVID-19, and that we are adjusting our credit guidelines for lender partners to manage the risk of our new acquisitions while ensuring we meet our mission to provide liquidity to the mortgage market." said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management at Fannie Mae.
With CIRT FE 2020-1, which became effective February 1, 2020, Fannie Mae will retain risk for the first 35 basis points of loss on a $23.2 billion pool of single-family loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent. If the $81 million retention layer is exhausted, 20 insurers and reinsurers will cover the next 315 basis points of loss on the pool, up to a maximum coverage of approximately $729.5 million. With CIRT FE 2020-2, which also became effective February 1, 2020, Fannie Mae will retain risk for the first 40 basis points of loss on a $16.4 billion pool of single-family loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent. If the $65.8 million retention layer is exhausted, fifteen insurers and reinsurers will cover the next 365 basis points of loss on the pool, up to a maximum coverage of approximately $600 million.
Coverage for these deals is provided based upon actual losses for a term of 13 years. Depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent, the aggregate coverage amount may be reduced at the 18th month following the effective date and each month thereafter. The coverage on each deal may be canceled by Fannie Mae at any time on or after the 5 and a half-year anniversary following the effective date by paying a cancellation fee.
As of March 31, 2020, $1.4 trillion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. Recently, Fannie Mae has been significantly restricted in its ability to enter into credit risk transfer transactions due to detrimental market conditions as a result of the COVID-19 outbreak. Fannie Mae does not anticipate being able to enter into such transactions until market conditions improve.
To promote transparency and to help insurers and reinsurers evaluate our program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages. This includes Fannie Mae's innovative Data Dynamics® tool that enables market participants to interact with and analyze both CIRT deals that are currently outstanding in the market and Fannie Mae's historical loan dataset. For more information on individual CIRT transactions, including pricing, please visit our Credit Insurance Risk Transfer website.
About Fannie Mae
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit:
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Statements in this release about future credit risk transfer efforts and the impact of credit risk transfer transactions are forward-looking. Actual developments may differ materially from these statements as a result of market conditions or other factors, including those listed in "Risk Factors" or "Forward-Looking Statements" in the company's annual report on Form 10-K for the year ended December 31, 2019 and its quarterly report on form 10-Q for the quarter ended March 31, 2020.