Fannie Mae has completed its latest Credit Insurance Risk Transfer transaction, the tenth deal since the program’s inception in 2013. This deal, CIRT 2016-3, shifts a portion of the credit risk on a pool of single-family loans with an unpaid principal balance of approximately $5.7 billion to a single insurer.

The covered loan pool consists of 30-year, fixed-rate loans with loan-to-value (LTV) ratios between 60% and 80% acquired from May through June 2015.

Fannie Mae uses CIRT, along with other credit risk transfer programs, to reduce taxpayer exposure to defaults on the residential mortgages that it insures. The various programs pay insurers and capital markets investors to take on some of this default exposure.

In this transaction, which became effective March 1, Fannie Mae retains risk for the first 50 basis points of loss on a $5.7 billion pool of loans. If this $28.5 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 $142.3 million.

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 five-year anniversary of the effective date by paying a cancellation fee. 

“We continue to see strong interest from insurers and reinsurers in our CIRT program and look forward to pursuing additional opportunities to transfer risk to these parties in the future,” Rob Schaefer, vice president for credit enhancement strategy & management at Fannie Mae said in a press release.

“Fannie Mae remains committed to leading efforts to bring private capital into the housing market.”

Since 2013, Fannie Mae has transferred a portion of the credit risk on $634 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.

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