Fannie Mae has completed its final Credit Insurance Risk Transfer transaction of 2018, covering loans in the company's portfolio.
The deal, CIRT 2018-8, which covers $12.8 billion in unpaid principal balance of 15-year and 20-year loans, is a part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $7.6 billion of insurance coverage on $307 billion of loans through the CIRT program.
"In 2018, we entered into commitments to insure over $91 billion of single-family loans through CIRT, transferring almost $2.6 billion of risk through eight separate transactions. This latest transaction transferred $192 million of risk to 20 reinsurers," said Rob Schaefer, vice president for credit enhancement strategy and management at Fannie Mae. “As the CIRT program continues to grow, Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions."
In CIRT 2018-8, which became effective Sept. 1, 2018, Fannie Mae will retain risk for the first 35 basis points of loss on a $12.8 billion pool of loans. If the $44.7 million retention layer is exhausted, reinsurers will cover the next 150 basis points of loss on the pool, up to a maximum coverage of $192 million.
Coverage for this deal is provided based on actual losses for a term of 7.5 years. 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 month thereafter. The coverage may be canceled by Fannie Mae after the four-year anniversary of the effective date by paying a cancellation fee.
The covered loan pool for the transaction consists of fixed-rate loans with loan-to-value ratios greater than 75 percent and less than or equal to 97 percent, and original terms between 15 and 20 years. The loans were acquired by Fannie Mae from April 2017 through May 2018.
Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of over $1.5 trillion, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities, and other forms of risk transfer.
