The Federal National Mortgage Association (Fannie Mae) has successfully secured re/insurance cover for $10.9 billion of multifamily loans in its first multi-tranche Credit Insurance Risk Transfer (CIRT) transaction.
Fannie Mae said that the transaction transferred $273 million of risk to nine insurance and reinsurance companies.
The completion of CIRT 2018-M02 marks Fannie Mae’s fourth CIRT transaction for the multifamily mortgage market.
Since 2016, the U.S government-sponsored insurer has transferred a portion of the credit risk on multifamily mortgages with an aggregate unpaid principal balance of more than $39.5 billion through its CIRT program.
In October, Fannie Mae completed its sixth and seventh CIRT transactions of 2018, securing cover for an additional $9 billion of mortgage loans.
“We are happy to introduce our first tranched multifamily credit risk sharing transaction, which allowed us to expand reinsurer and insurer participation and realize favorable blended pricing on the tiered risk sharing,” said Jonathan Gross, Vice President, Multifamily at Fannie Mae.
“This program, aimed at sharing risk with diversified reinsurer and insurer counterparties specifically, supplements our Delegated Underwriting and Servicing (DUS) program where originating lenders routinely share approximately one-third of the credit risk on our multifamily loans,” he explained.
“Our multifamily CIRT program helps us mitigate risk on the other two-thirds of credit risk, benefitting U.S. taxpayers. We plan to return to the market next year with additional multifamily CIRT transactions.”
The covered loan pool for the CIRT 2018-M02 transaction consists of 1,085 loans with an unpaid principle balance of $30 million or less.
The loans were secured by 1,091 multifamily properties that were acquired by Fannie Mae from February 2018 through June 2018.
Effective from October 1, 2018, the CIRT arrangement will see Fannie Mae retain risk on the first 150 basis points of losses, with the A tranche transferring risk to reinsurers for the next 150 to 300 basis point of loss and the B tranche transferring risk for the next 300 to 400.
Finally, once the pool has experienced 400 basis points of losses, the credit protection will be exhausted and Fannie Mae will be responsible for any further losses.
