Fannie Mae said Thursday it obtained reinsurance on another $11.7 billion of residential mortgages through its Credit Insurance Risk Transfer of the year.
The deal, CIRT 2016-9, became effective Oct. 1. It shifts a portion of the credit risk on a pool of loans to a group of reinsurers. For the first time since the program’s inception, the covered loan pool consists of 15-year and 20-year fixed rate mortgages. Previous deals obtained reinsurance exclusively on 30-year fixed-rate mortgages.
CIRT is one of several programs that Fannie Mae uses to offload some of the credit risk on mortgages that it insures, reducing the losses that could ultimately be borne by taxpayers in another housing crisis. The government sponsored enterprise is currently in conservatorship.
In this deal, Fannie Mae retains risk for the first 35 basis points of loss in the covered pool. If this $41 million retention layer were exhausted, reinsurers would cover the next 175 basis points of loss on the pool, up to a maximum coverage of approximately $205 million.
Coverage for these deals is provided based upon actual losses for a term of 7.5 years.
Depending upon 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 two-year anniversary and each anniversary of the effective date thereafter. The coverage may be canceled by Fannie Mae at any time on or after the four-year anniversary of the effective date by paying a cancellation fee.
“With CIRT 2016-9, we identified a new segment of loans for which risk sharing was economical and that proved attractive to our risk-sharing reinsurer partners,” said Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae.
To date, Fannie Mae has acquired more than $3 billion of reinsurance coverage on over $124 billion of loans through the CIRT program.