Fannie Mae Announces Third Front-End Credit Insurance Risk Transfer Transaction

Deal Shifts a Portion of the Credit Risk on Approximately $5.2 Billion of Single-Family Loans

Alicia Jones

202-751-5716

WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has secured commitments for a new front-end Credit Insurance Risk Transfer^™ (CIRT^™) transaction. This will be the third CIRT transaction completed on a “flow” basis, meaning the risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans and that the insurance coverage will be effective as soon as the loans are acquired. The loan pool is expected to be filled over the course of nine months, beginning with second quarter 2017 deliveries.

The transaction will shift a portion of the credit risk on pools of single-family loans with a combined unpaid principal balance (UPB) of approximately $5.2 billion to a group of reinsurers that are affiliates of mortgage insurers approved to write primary coverage on loans sold to Fannie Mae. The covered loan pool will consist of 30-year fixed-rate loans with loan-to-value (LTV) ratios greater than 80 percent and less than or equal to 97 percent. All loans covered by this new transaction will already have primary mortgage insurance coverage.  CIRT will provide protection for any credit losses not covered by the underlying primary mortgage insurance.

“Our three front-end CIRT transactions complement the coverage we acquire on a ‘bulk’ basis through Connecticut Avenue Securities (CAS) and our traditional CIRT, with coverage written by both diversified traditional reinsurers as well as mono-line affiliates of our approved mortgage insurers.  Our CIRT and CAS transactions cover loans with LTV ratios both above and below 80 percent. We are pleased with the robust interest this program is attracting,” said Rob Schaefer, vice president for Credit Enhancement Strategy & Management, Fannie Mae. ”We remain committed to the transparency of these transactions, which support our goal to transfer credit risk away from taxpayers while providing us certainty of coverage.”

Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $5.2 billion pool of loans. If this approximately $26 million retention layer is exhausted, the participating mortgage insurance companies will cover the next 265 basis points of loss on the pool, up to a maximum coverage of approximately $138 million.

Coverage for these deals will be provided based upon actual losses for a term of 10.5 years from the effective date. 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 18^th month following the effective date and every 12 months thereafter. The coverage may be canceled by Fannie Mae at any time on or after the 66^th month following the effective date by paying a cancellation fee. Pricing for this new and past CIRT transactions can be found at https://www.fanniemae.com/resources/file/credit-risk/pdf/cirt-deal-pricing-information.pdf.

In addition to the CIRT program, Fannie Mae continues to reduce risk to taxpayers through its flagship Connecticut Avenue Securities™ program and other forms of risk transfer. Depending on market conditions, 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.

More information on Fannie Mae’s credit risk transfer activities is available at https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.