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Fannie Mae transfers more credit risk to re/insurers

14th June 2018 - Author: Matt Sheehan

The Federal National Mortgage Association (Fannie Mae) has successfully secured re/insurance cover for a further $10 billion of single-family loans with the completion of its second and third traditional Credit Insurance Risk Transfer (CIRT) transactions of 2018.

Fannie Mae LogoThe completion of the CIRT 2018-2 and CIRT 2018-3 deals are 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 a total of around $6.2 billion of re/insurance coverage on $254 billion of loans through the CIRT programme.

Rob Schaefer, Vice President for Credit Enhancement Strategy & Management at Fannie Mae, said: “These new transactions transferred $311 million of risk to sixteen reinsurers and insurers, reflecting the strong and growing interest in our CIRT program. Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions.”

The CIRT 2018-2 deal will see Fannie Mae retain risk for the first 50 basis points of loss on a $9 billion pool of loans, with reinsurers covering the next 300 basis points of loss up to a maximum coverage of $271 million if the $45.2 million retention layer is exhausted.

With CIRT 2018-3, Fannie Mae will retain risk for the first 50 basis points on a $1.3 billion pool of loans, with an insurer covering the next 300 basis points of loss on the pool up to a maximum coverage of $40 million, should the $6.7 million retention layer be exhausted.

Coverage on the deals will be provided based upon actual losses for a term of 10 years, although the aggregate coverage amount may be reduced after one year, or cancelled by Fannie Mae for a fee after five years.

The loan pools covered by the two transactions consist of fixed-rate loans with original terms between 21 and 30 years, which were acquired by Fannie Mae from April 2017 through September 2017.

Fannie Mae has been transferring a portion of the credit risk on single-family mortgages with unpaid principal balance of over $1.3 trillion via CIRT, Connecticut Avenue Securities (CAS), and other forms of risk transfer since 2013, and expects to continue coming to market with similar deals in the future.

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