Fannie Mae Announces Two Credit Insurance Risk Transfer Transactions on $23 Billion of Single-Family Loans

Alicia Jones

202-752-5716

WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it has completed the third set of traditional Credit Insurance Risk Transfer^™ (CIRT^™) transactions of 2017 covering existing loans in the company’s portfolio. The two deals, CIRT 2017-5 and CIRT 2017-6, which together cover $23 billion of loans, are a part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $5 billion of insurance coverage on $205 billion of loans through the CIRT program. 

“These new transactions transferred $517 million of risk to seventeen reinsurers and insurers, reflecting the strong and growing interest in our CIRT program,” said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, at Fannie Mae. “Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions.”

In CIRT 2017-5, which became effective August 1, 2017, Fannie Mae will retain risk for the first 50 basis points of loss on a $20.8 billion pool of loans. If the $103.8 million retention layer is exhausted, reinsurers will cover the next 225 basis points of loss on the pool, up to a maximum coverage of approximately $467 million. With CIRT 2017-6, which also became effective August 1, 2017, Fannie Mae will retain risk for the first 50 basis points of loss on a $2.2 billion pool of loans. If this $11.1 million retention layer is exhausted, an insurer will cover the next 225 basis points of loss on the pool, up to a maximum coverage of approximately $50 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 one-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. 

The covered loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent, and original terms between 21 and 30 years. The loans were acquired by Fannie Mae from August 2016 through December 2016. A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found at https://www.fanniemae.com/resources/file/credit-risk/pdf/cirt-deal-pricing-information.pdf.

Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with unpaid principal balance of over $1 trillion, measured at the time of transaction (including the full contract amount for front-end CIRT transactions), through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities^™ (CAS), and other forms of risk transfer. As of June 30, 2017, $798 billion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. 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.