A panel of conterparties including sixteen insurance and reinsurance companies have backed the first two Credit Insurance Risk Transfer™ (CIRT™) transactions of 2017 for Fannie Mae, covering $20.4 billion of loans.
Insurance and reinsurance capital has increasingly backed the Fannie Mae mortgage loan credit insurance risk transfer deals in recent times, as re/insurers have doubled-down on assuming mortgage insurance risk as a relatively untapped source of opportunity.
CIRT 2017-1 and CIRT 2017-2, which between them cover the $20.4 billion of single-family loans, help Fannie Mae to reduce taxpayer risk by increasing the role of private capital in the mortgage market.
Fannie Mae has acquired almost $4 billion of insurance coverage on just under $160 billion of loans through the CIRT program to-date, with insurance and reinsurance companies providing a significant proportion of that capacity.
“These two CIRT transactions transferred $510 million of risk and were met with a record number of participants, which included sixteen reinsurers and insurers,” commented Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae. “We are pleased with the growing interest in our CIRT program and will continue to take steps to build liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions.”
Both are indemnity transactions with 10-year terms, covering losses on the pools of loans for Fannie Mae.
CIRT 2017-1, which was in-force from February 1st 2017, sees Fannie Mae retaining risk for the first 50 basis points of loss on an $18.1 billion pool of loans, a $90 million retention layer which if exhausted will result in reinsurers covering the next 250 basis points of loss on the pool, up to a maximum coverage of approximately $452 million.
CIRT 2017-2, also in-force from February 1st 2017, features a retention of the first 50 basis points of loss on a $2.3 billion pool of loans, so an $11.5 million retention layer which if exhausted will see an insurer covering the next 250 basis points of loss on the pool, up to a maximum of approximately $57.5 million.
Reinsurers are soaking up risk out of the U.S. government backed mortgage pools and this is anticipated to continue, as Fannie Mae and its ilk continue to bring private capital into the U.S. mortgage market.
