Fannie Mae Successfully Executes Two Front-End Credit Insurance Risk Transfer Transactions on 30-year SF Loans
Program Continues to Demonstrate Market Leadership and Reduce Taxpayer Risk
WASHINGTON, DC – Fannie Mae (FNMA/ OTCQB) announced today that it has secured commitments for two new front-end Credit Insurance Risk Transfer™ (CIRT™) transactions of 2019. The two front-end deals, CIRT FE 2019-1 and CIRT FE 2019-2, will together cover up to $14 billion of loans to be acquired by Fannie Mae between May 2019 through April 2020, and transfer up to $455 million of credit risk on those covered loans. As part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market, it has committed to acquire about $9.3 billion of insurance coverage on $359 billion of single-family loans through the CIRT program to date.
"Nineteen insurers and reinsurers participated on these two front-end CIRT transactions, providing Fannie Mae the certainty of forward coverage on loans that we will acquire over a 12-month period," said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. "We are proud to be a leader in building and supporting the market for transferring single-family mortgage credit risk to private sources of capital."
As the CIRT program continues to grow, Fannie Mae remains committed to increasing liquidity in the mortgage credit risk-sharing market through the regularity and transparency of our credit risk transfer transactions.
The coverage and pricing of both deals are committed for 12 months, beginning with May 2019 deliveries. With CIRT FE 2019-1, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $8 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 $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. With CIRT FE 2019-2, Fannie Mae will retain risk for the first 50 basis points of loss on a $6 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 $30 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 $195 million.
Coverage for these deals is provided based upon actual losses for a term of 10.5 years from the effective date of May 1, 2019. 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 66th 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 an unpaid principal balance of over $1.7 trillion, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities™ (CAS), and other forms of risk transfer. As of March 31, 2019, $1.2 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. 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.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 fanniemae.com and follow us on twitter.com/FannieMae.