Fannie Mae transfers risk on $23 billion in single-family loans

The Housing Wire - 28 Sep 2017 - Kelsey Ramírez

Fannie Mae announced it completed its third set of traditional credit insurance risk transfer transactions of 2017 with its transaction that included $23 billion unpaid principle balance in single-family loans.

This latest transaction is part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. This transaction increased the total insurance coverage the GSE acquired to $5 billion on $305 billion in 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, Fannie Mae vice president of credit enhancement strategy and management. “Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions.”

CIRT 2017-5 became effective as of August 1, 2017, and like the other transactions this year, Fannie Mae will retain the risk for the first 50 basis points of loss on a $20.8 billion pool of loans.

After that, 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 $467 million.

CIRT 2017-6 also became effective as of August 1, 2017, and Fannie Mae will retain the risk for the first 50 points of loss on a $2.2 billion pool of loans. After surpassing this $11.1 million mark, an insurer will cover the next 225 basis point drop up to $50 million.

Coverage for these deals is provided based upon actual losses for a term of 10 years. However, 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 after that. Fannie Mae can cancel the coverage at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.

The two pools contained fixed-rate loans with loan-to-value ratios of at least 60% and up to 80% with original terms between 21 and 30 years. Fannie Mae acquired these loans from August 2016 to December 2016.