Fannie Mae has come out with its own pilot program featuring front-end risk sharing with private mortgage insurers. Freddie Mac announced its pilot program on Sept. 26.
Approximately $3.7 billion of newly originated mortgages will be included in the pilot, which will start with loans delivered during the fourth quarter and continuing for a six-month period, Fannie Mae said.
Fannie Mae is retaining the first 35 basis points of loss, which is equal to $13 million. Then the private mortgage insurers will take on the next 2.65% of coverage, up to a maximum of $98 million. Mortgage insurance normally covers between 16% and 37% of the loan balance.
Unlike Freddie Mac, Fannie Mae is including loans with as little as 3% down in its pilot. The Freddie Mac pilot is limited to mortgages with loan-to-value ratios between 80% and 95%.
The Freddie Mac pilot also adds an additional 265 basis points of coverage by the MIs to low-down-payment mortgages. That program started on Sept. 1 and will run through Feb. 28. Freddie Mac estimates it will transfer more than $100 million of backing to the private insurers, on almost $4 billion of loans.
These pilots represent the first front-end risk-sharing transactions where private mortgage insurers are the investors.