Fannie Mae has completed its first multi-tranche Credit Insurance Risk Transfer transaction covering a pool of approximately $10.9 billion of existing multifamily loans in the company’s portfolio. This transaction, CIRT 2018-M02, is the fourth one designed to increase the role of private capital in the multifamily mortgage market.
“We are happy to introduce our first tranched multifamily credit risk sharing transaction, which allowed us to expand reinsurer and insurer participation and realize favorable blended pricing on the tiered risk sharing,” said Jonathan Gross, vice president of multifamily for Fannie Mae. “This new transaction transferred $273 million of risk to nine reinsurers and insurers. This program, aimed at sharing risk with diversified reinsurer and insurer counterparties specifically, supplements our delegated underwriting and servicing program where originating lenders routinely share approximately one-third of the credit risk on our multifamily loans. Our multifamily CIRT program helps us mitigate risk on the other two-thirds of credit risk, benefitting U.S. taxpayers. We plan to return to the market next year with additional multifamily CIRT transactions.”
The covered loan pool for the transaction consists of 1,085 loans, secured by 1,091 multifamily properties, acquired by Fannie Mae from February 2018 through June 2018. Each loan has an unpaid principal balance of $30 million or less.
The transaction became effective Oct.1, 2018, Fannie Mae will retain risk on the first 150 basis points of losses. The A tranche will transfer risk to reinsurers covering the next 150 basis points to 300 basis points of losses. The B tranche will transfer risk to reinsurers covering the next 300 to 400 basis points of losses on the reference pool. Finally, once the pool has experienced 400 basis points of losses, the credit protection will be exhausted, and Fannie Mae will be responsible for any further losses.
Since 2016, in addition to the risk transferred to its DUS lender partners, Fannie Mae has transferred a portion of the credit risk on multifamily mortgages with an aggregate unpaid principal balance of more than $39.5 billion through its CIRT program.
