Fannie Mae said Friday it offloaded much of the credit risk on $19.5 billion of mortgages to a group of insurers and reinsurers via two Credit Insurance Risk Transfer (CIRT) transactions.
The deals, CIRT 2016-1 and CIRT 2016-2 represent the largest cumulative CIRT transactions to date. The covered loan pools consist of 30-year fixed rate loans with loan-to-value (LTV) ratios between 60% and 80%. The loans were acquired by Fannie Mae from December 2014 through April 2015.
Including these latest deals, Fannie Mae has acquired nearly $1.7 billion of insurance coverage on over $66 billion of loans, provided by nine CIRT transactions since the program's inception in 2014.
In CIRT 2016-1, which became effective Feb. 1, Fannie retains risk for the first 50 basis points of loss on an $8.8 billion pool of loans. If this $44 million retention layer is exhausted, reinsurers would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $220 million.
With CIRT 2016-2 which also became effective Feb. 1, Fannie retains risk for the first 50 basis points of loss on a $10.7 billion pool of loans. If this $53 million retention layer is exhausted, an insurer would cover the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $267 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 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 at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.
Since 2013, Fannie Mae has transferred a portion of the credit risk on over half a trillion dollars in single-family mortgages through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities 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.