Fannie Mae’s latest risk-sharing transaction is a reinsurance policy.

The Credit Insurance Risk Transfer (CIRT) 2015-1 shifts the risk of default on a $4.68-billion pool of residential mortgages to an unnamed panel of reinsurers.

Fannie Mae retains risk for the first 50 basis points of loss; if this $23.4 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 $117 million.

Coverage is provided based upon actual losses for a term of 10 years.

To date, CIRTs are the only kind of transaction offering exposure to actual losses on mortgages insured by Fannie Mae. However the government sponsored enterprise has indicated that it will offer actual losses exposure on another kind of transaction, a credit linked note program called Connective Avenue Securities. Rival Freddie Mac has already incorporated this feature into its credit linked notes.

“This transaction represents a continuation of Fannie Mae’s efforts to develop innovative ways to transfer risk to the market and leverage the substantial resources and private capital of the reinsurance industry," Rob Schaefer, vice president for credit enhancement strategy & management at Fannie Mae, said in a press release. 

“We are pleased that this form of risk transfer has been well received by the market and, based on the indicated support by the reinsurers, we intend to bring similar transactions to the market in the future.”

CIRT 2015-1 is smaller than Fannie Mae’s previous reinsurance transaction, CIRT 2014-1, completed in November of last year and the loans are also more seasoned. The pool consists of 30-year fixed rate loans with loan-to-value (LTV) ratios greater between 60% and 80% that were acquired by Fannie Mae from September through December of 2013.

CIRT 2014-1 transferred the risk on a pool of $6.42 billion of 30-year fixed rate loans with LTVs between 60% and 95% acquired by Fannie Mae from January through March of 2014.

Both deals provide 10 years of coverage. 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 various anniversaries of the transaction. 

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