Fannie Mae Completes $14.4B of Credit Insurance Risk Transfers

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Fannie Mae has completed two Credit Insurance Risk Transfer transactions worth $14.4 billion, in a continuation of its efforts to reduce taxpayer risk through an increased role for private capital in the mortgage market.

The two deals, CIRT 2016-7 and CIRT 2016-8, transferred the risk on loans Fannie Mae acquired between July and December 2015 to a group of insurers and reinsurers and became effective Aug. 1. The pools featured 30-year fixed-rate loans with loan-to-value ratios between 60% and 80%.

For CIRT 2016-7 Fannie Mae agreed to retain the risk for the first 50 basis points of loss on the $10.4 billion pool of loans and then cover the next 250 basis points of loss on the pool up to a maximum coverage of $260 million if the initial $52 million retention layer is exhausted.

With the second deal, CIRT 2016-8, Fannie Mae retained the risk for the initial 50 basis points of loss on the $4 billion pool, and then similarly will cover the following 250 basis points of loss up to a maximum coverage of $100 million when the starting retention layer of $20 million is exhausted.

The deals' coverage is provided for actual losses incurred during a 10-year term. The aggregate coverage amount can be reduced starting on the three-year anniversary of the deals' effective date and on each subsequent anniversary thereafter based on the paydown of the pool and the principal amount of insured loans that become seriously delinquent.

Additionally, Fannie Mae reserves the right to cancel coverage at any time on or after the five-year anniversary of the effective date after paying a fee.

"We're pleased with the continued interest and growth in our Credit Insurance Risk Transfer program," Rob Schaefer, Fannie Mae's vice president for credit enhancement strategy and management, said in a news release. "These new deals attracted a record number of 12 reinsurers, including three new participants. We remain committed to managing and distributing credit risk and building liquidity in this risk-sharing market."

To date, Fannie Mae has transferred some portion of the credit risk on $759 billion in single-family loans through its various credit risk transfer efforts.

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