Fannie Mae obtained reinsurance on $14.4 billion of residential mortgage through its Credit insurance Risk Transfer program.
The two deals, CIRT 2016-7 and CIRT 2016-8, shift a portion of the credit risk on pools of single-family loans with a combined unpaid principal balance of approximately $14.4 billion to a group of insurers and reinsurers. The covered loan pools for the two transactions consist of 30-year fixed rate loans with loan-to-value ratios of between 60% and to 80%. The loans were acquired by Fannie Mae from July 2015 through December 2015
In CIRT 2016-7, which became effective Aug. 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $10.4 billion pool of loans. If this $52 million retention layer is exhausted, reinsurers will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $260 million. With CIRT 2016-8, which also became effective Aug. 1, 2016, Fannie Mae retains risk for the first 50 basis points of loss on a $4 billion pool of loans. If this $20 million retention layer is exhausted, an insurer will cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $100 million.
Coverage for these deals is provided based upon actual losses for a term of 10 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 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.
To date, the company has transferred a portion of the credit risk on $759 billion in single-family mortgages measured at the time of the transactions closing through CIRT and other risk transfer programs.
“We’re pleased with the continued interest and growth in our Credit Insurance Risk Transfer program. These new deals attracted a record number of twelve reinsurers, including three new participants,” said Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae. “We remain committed to managing and distributing credit risk and building liquidity in this risk-sharing market.”
Since 2013, Fannie Mae has transferred a portion of the credit risk on $759 billion in single-family mortgages through its credit risk transfer efforts. Fannie Mae expects to continue coming to market with Credit Insurance Risk Transfer and Connecticut Avenue Securities™ ("CAS") deals that allow private capital to gain exposure to the U.S. housing market.