Fannie Mae completes first two CIRT deals of 2020, moving $1B of risk

Fannie Mae completed its first two Credit Insurance Risk Transfer transactions of 2020, shifting $1 billion of single-family loan credit risk to insurers and reinsurers.

The underlying loans have an unpaid principal balance of $30.7 billion, with original terms ranging from 21 years through 30 years. All loans are fixed-rate.

Through the CIRT program, insurers assume the credit risk on a pool of mortgage loans; that risk can then be further shared with reinsurers.

To date, Fannie Mae has committed to acquire approximately $11.6 billion of insurance coverage on $435.2 billion of single-family mortgages through both post-acquisition "bulk" deals and front-end transactions.

"Over the past six years we have built a market for credit risk that, with each new transaction, continues to draw on the growing interest of insurers and reinsurers," Rob Schaefer, vice president for credit enhancement strategy and management, said in a press release. "We appreciate our partnership with the 23 insurers and reinsurers that wrote coverage for these deals, a new record-high level of participation for a single CIRT transaction."

In the CIRT 2020-1 transaction, Fannie Mae retains the risk for the first 35 basis points of loss on an $18.5 billion pool of single-family loans with loan-to-value ratios greater than 60% and less than or equal to 80%. If the $64.6 million retention layer is exhausted, 23 insurers and reinsurers will cover the next 300 basis points of loss, up to a maximum of approximately $553.6 million.

For the second transaction, CIRT 2020-2, Fannie Mae retains the risk for the first 40 basis points of loss on a $12.2 billion pool of single-family loans with LTVs between 80% and 97%. If the $48.8 million retention layer is exhausted, 17 insurers and reinsurers will cover the next 350 bps of loss, up to a maximum of approximately $427.2 million. The effective date on both transactions was Jan. 1.

Coverage for these deals is based upon actual losses for a 12.5-year term. 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. Fannie Mae can cancel coverage at any time on or after the fifth anniversary of the effective date by paying a fee.

Last year, Fannie Mae had $445 billion UPB of single-family credit risk transfer issuances, of which $82 billion came through the CIRT program. In 2018, CIRT made up $86 billion of the $338 billion UPB in Fannie Mae credit risk transfers.

Earlier this year, Fannie Mae completed a $1.03 billion single-family credit risk transfer transaction through its Connecticut Avenue Securities program.