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.

The Federal Housing Finance Agency reports that Fannie Mae and Freddie Mac have completed 253,135 refinances in the third quarter of 2018, compared with 299,460 in the second quarter.

FHFA's third quarter Refinance Report also shows that 1,865 loans were refinanced through the Home Affordable Refinance Program, bringing the total number of HARP refinances to 3,493,005 since inception of the program in 2009.

Although HARP is scheduled to expire at the end of December, 38,818 borrowers could still benefit financially from a HARP refinance, according to data released today.  These borrowers meet the basic HARP eligibility requirements and have a remaining balance of $50,000 or more on their mortgage. Also, they have a remaining term on their loan of greater than 10 years, and a mortgage interest rate that is at least 1.5 percent higher than current market rates.  They could save an average of $2,290 each year through a HARP refinance.

In addition, the report covered the following:

• Through the third quarter of 2018, 33 percent of HARP refinances for underwater borrowers were for shorter-term 15- and 20-year mortgages, which build equity faster than traditional 30-year mortgages.
• One U.S. territory and nine states account for more than 70 percent of borrowers who remain eligible for HARP and have a financial incentive to refinance as of June 30, 2018:  Puerto Rico, Illinois, New Jersey, Florida, Michigan, Ohio, Pennsylvania, Maryland, Alabama and Georgia.
• Borrowers who refinanced through HARP had a lower delinquency rate compared with borrowers eligible for HARP who did not refinance through the program.

Bankers are worried about the effect of a Democratic takeover of the House.

Seventy-three percent of respondents saw a Democratic takeover of the House of Representatives to be a serious concern for their bank, according to the Bank Executive Business Outlook Survey from the Promontory Interfinancial Network.

Other findings from the survey demonstrate:

• Seventy-three percent of respondents saw a Democratic takeover of the House of Representatives to be a serious concern for their bank. Asked to rate their level of concern on a scale of 1-5 (5 being the highest level of concern), 41% chose a rating of 5 and another 32% gave a rating of 4.
• Despite growing market turbulence, almost eight in 10 respondents (78%) see Wall Street’s bull market continuing until at least the second half of 2019.
• A majority of respondents (65%) have some level of confidence in the U.S. regulatory system’s ability to manage a future crisis on par with 2008’s financial crisis. Larger community banks (banks with assets between $1 and $10 billion) expressed a higher level of confidence than smaller community banks (banks with assets of less than $1 billion).

The survey showed some interesting regional differences.

On the question of how big of a concern the Democrats taking control of the House was to community banks, the strongest level of concern was found among respondents in the South and the West (with 84% and 75%, respectively, rating their level of concern as a 4 or a 5), closely followed by the Midwest (72%). The rating scale runs from 1-5, with 5 being the highest level of concern

Bankers in the Northeast were the least concerned with only 50% rating their level of concern as a 4 or a 5. Bank size also factored in responses; 75% of smaller community banks (less than $1 billion in assets) said they had serious concerns about a Democratic takeover of the House, compared to larger community banks (banks with $1 billion to $10 billion in assets) of which 60% of respondents rated their level of concern as a 4 or a 5.

Turning to other questions, banker views on how overall economic conditions affected their business in the previous 12 months remained mostly positive from last quarter’s report. But when looking ahead, bankers were less bullish on continued improvements—those who expect conditions to improve dropped by seven percentage points, while those who expect conditions to stay the same increased by seven percentage points.

“Bankers continue to hold a cautious view of future overall economic conditions, despite continued positive economic news,” said Mark Jacobsen, cofounder and CEO of Promontory Interfinancial Network.

On the metrics that make up Promontory Interfinancial Network’s proprietary Bank Experience Index (access to capital, loan demand, funding costs, and deposit competition now compared to 12 months ago), the survey results showed a negligible half-point increase from the second quarter (to 46.2).

According to the forward-looking Bank Confidence Index (access to capital, loan demand, funding costs, and deposit competition expectations for 12 months from now), the survey results showed a significant 1.4-point drop from last quarter, bringing the Bank Confidence Index to its lowest level recorded (43.5) since its inception in 2015. (Charted on a scale of 0-100, a score of 50 represents the baseline expectation.)

Regional differences on several “look-back” measures (experience) were noteworthy. Community banks in the Northeast and South saw a significant increase (15 and 18 percentage points, respectively) from the second quarter on the question of improved access to capital. At the same time, 33% of banks in the Northeast reported a decrease in loan demand—the most of any region and an 11-point increase over last quarter.

There were some variations on expectations for the future as well, especially when it comes to bank size and region. Among community banks with $1 billion-$10 billion in assets, the survey results showed a 17-point drop since Q2 in expectation for increased loan demand over the next 12 months. The results also showed a 12-point drop (from Q2) in the percentage of Northeast banks foreseeing an increase in deposit competition 12 months down the road.

More than 3,000 financial institutions participate in the Promontory Interfinancial Network’s balance sheet and liquidity management solutions to acquire and retain large-dollar customer relationships, purchase funding, reduce collateralization costs as well as buy and sell bank assets.

The Federal Housing Finance Agency set the 2019 multifamily lending caps at $35 billion for Fannie Mae and Freddie Mac, unchanged from the 2018 caps. The caps are based on FHFA’s projections of the overall size of the 2019 multifamily originations market, which FHFA expects to be relatively flat compared to the market in 2018.  In setting the caps, FHFA also considers multifamily market estimates developed by industry participants and analysts.

As in prior years, FHFA will review its estimates of the multifamily loan origination market size on a quarterly basis, including consultation with multifamily lenders and Fannie and Freddie, and will adjust the caps if necessary.  To prevent disruption in the market, if FHFA determines that the actual size of the 2019 market is smaller than was initially projected, it will not reduce the caps.

The multifamily lending caps are to ensure provide liquidity for the multifamily market without impeding the participation of private capital. Because market support for affordable multifamily housing has historically been limited, FHFA will continue to exclude from the 2019 caps certain loans in the affordable and underserved market segments.

For 2019, FHFA is making the following changes to these excluded categories:

• Loans to finance energy or water efficiency improvements: FHFA is increasing the requirements for exclusion from the multifamily cap loans that finance energy or water efficiency improvements through Fannie Mae’s Green Rewards and Freddie Mac’s Green Up or Green Up Plus programs. To qualify for exclusion from the cap, multifamily loans that finance energy or water efficiency improvements must project at least a 30 percent reduction in whole property energy and water consumption and a minimum of 15 percent of the reduction must be in energy consumption. Also, FHFA is adding a data collection requirement for all excluded Green Rewards and Green Up or Green Up Plus loans, which requires engagement of a third-party data collection firm prior to closing.  The consumption reduction threshold ensures that the benefits from green renovations are passed through to the tenants, while the added data requirement allows FHFA to evaluate the green improvements programs. ​

• ​Loans on affordable units in cost-burdened renter markets: To address the critical shortages of affordable rental housing in some markets, FHFA has developed a data-driven approach it will follow to designate markets in which units affordable to cost-burdened renters at certain area median income levels will be excluded from the multifamily cap on a pro-rata basis. This data-driven process will ensure that exclusions from the cap are focused on markets where renters are most cost-burdened and will result in less variation in market designations over time and offer greater stability to the multifamily market.