The Federal National Mortgage Association (Fannie Mae) has transferred up to $1.3 billion of mortgage credit risk to the private market through the combination of two recently executed front-end Credit Insurance Risk Transfer (CIRT) transactions.
CIRT FE 2020-1 and CIRT FE 2020-2 together cover up to $39.6 billion in unpaid principal balance of 21-year to 30-year original-term, fixed-rate loans, including loans previously acquired between November 2019 and January 2020, as well as loans to-be acquired between February 2020 and January 2021.
Fannie Mae states that combined, these two transactions transfer up to $1.3 billion of mortgage credit risk, as part of the government-sponsored enterprise’s (GSE) ongoing commitment to increase private capital participation in the mortgage market to lower taxpayer risk.
The GSE has committed to acquire roughly $12.9 billion of insurance protection on $475 billion of single-family loans through the CIRT program.
Rob Schaefer, Vice President for Credit Enhancement Strategy & Management at Fannie Mae, commented: “CIRT FE 2020-1 and FE 2020-2 secure approximately $729 million and $600 million of coverage, respectively. Both are record-high levels of coverage for a low and high loan-to-value ratio CIRT transaction. These transactions were executed in March, prior to the enormous changes that have since impacted our economy and our daily lives.
“We appreciate our partnership with the 20 insurers and reinsurers that wrote coverage for these deals, and hope that they, their co-workers, and families all stay safe during this global crisis. These participating insurers and reinsurers have Fannie Mae’s commitment that we will use all of our resources to assist borrowers through temporary hardships related to COVID-19, and that we are adjusting our credit guidelines for lender partners to manage the risk of our new acquisitions while ensuring we meet our mission to provide liquidity to the mortgage market.”
Providing some insight into the deals, Fannie Mae explains that with CIRT FE 2020-1, which became effective Feb 1st, it will retain the first 35 basis points of loss on a $23.2 billion pool of single-family loans with loan-to-value ratios greater than 60% and less than or equal to 80%. Should the retention layer of $81 million be eroded, the group of 20 re/insurers will cover the next 315 basis points of loss on the pool, up to a maximum limit of roughly $729.5 million.
With CIRT FE 2020-2, which became effective on the same date, Fannie Mae retains the first 40 basis points of loss on a $16.4 billion pool of single-family loans with loan-to-value ratios greater than 80% and less than or equal to 97%. The retention layer for this deal stands at $65.8 million, and if this is exhausted then the cohort of re/insurers will cover the next 365 basis points of loss on the pool, up to a limit of roughly $600 million.
According to Fannie Mae, coverage on these two transactions is based upon actual losses from a 13-year term. Additionally, the entity states that depending on the paydown of the insured pool and also the principal amount of insured loans that become seriously delinquent, the aggregate protection amount may be reduced at a future date.
The GSE warns that in recent times, the impact of the COVID-19 pandemic has significantly restricted its ability to transact these types of deals. Going forward, Fannie Mae says that it “does not anticipate being able to enter into such transactions until market conditions improve.”
