Fannie Mae has transferred the credit risk on a $12 billion pool of mortgage to reinsurers.
The two deals, Credit Insurance Risk Transfer 2015-4 and Credit Insurance Risk Transfer 2015-5, are the first in this program to provide reinsurance on a pool of only 30-year fixed-rate loans with loan-to-values ratios of over 80%.
The loans were acquired by Fannie Mae from September through December of 2013 and April through December 2014.
Participants in the two deals include a multi-line insurer and multiple reinsurers.
Both deals became effective Oct. 1.
In CIRT-2015-4, 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.
In CIRT-2015-5, 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 three-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.
Fannie Mae is mandated by its regulator to transfer the credit risk of mortgage that it insures to the capital markets in order to avoid putting taxpayers on the hook for losses. Through CIRT, it has acquired more than $800 million of insurance coverage on over $32 billion of loans this year.
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, its Connecticut Avenue Securities program and other forms of risk transfer.