Fannie Mae has completed a multi-tranche credit insurance risk transfer transaction covering a pool of around $11.7 billion of existing multifamily loans in the company’s portfolio.
The transaction, MCIRT 2019-01, is the fifth credit-risk transaction and designed to increase the role of private capital in the multifamily mortgage market and mitigate risk for taxpayers.
“Further innovation and reinsurer interest allowed us to bring to market our first three-tranche offering,” said Jonathan Gross, vice president of multifamily for Fannie Mae. “This new transaction transferred $332 million of risk to reinsurers and insurers, making it the largest single transfer of risk for our multifamily credit insurance risk transfer program. Depending on market conditions, we plan to return later this year with additional multifamily credit insurance risk transfer transactions.”
Fannie Mae’s multifamily credit insurance risk transfer program shares risk with many reinsurer and insurer counterparties and supplements the Delegated Underwriting and Servicing program where originating lenders share around one-third of the credit risk on multifamily loans.
The covered loan pool for the transaction consists of 1,155 loans, secured by an equal number of multifamily properties acquired between July and October 2018. Each loan has an unpaid principal balance of $30 million or less.
Under the structure of the deal, Fannie Mae will retain risk on the first 75 basis points of losses on the reference pool. The C tranche will transfer risk to reinsurers covering losses between 75 basis points and 150 basis points. The B tranche will transfer risk to reinsurers covering losses between 150 basis points and 275 basis points. The A tranche will transfer risk to reinsurers covering losses between 275 basis points and 400 basis points. Once the pool has experienced 400 basis points of losses, the credit protection will lapse, and Fannie Mae will be responsible for additional losses.
Since 2016, in addition to the risk retained by its DUS lender partners, Fannie Mae has transferred a portion of the credit risk on multifamily mortgages with an unpaid principal balance of more than $51 billion.