Fannie Mae has obtained reinsurance for $510 million of credit losses on $20.4 billion of single-family residential mortgages through a pair of credit insurance risk transfer transactions.
The two deals, CIRT 2017-1 and CIRT 2017-2, are each linked to a pool of 30-year fixed-rate loans with loan-to-value ratios between 60% and 80%. The loans were acquired by Fannie Mae from January through July 2016. Both became effective Feb. 1.
Fannie Mae will absorb the first 50 basis points of losses on each pool, or the first $90 million of losses on CIRT 2017-1 and the first $11.5 million of losses on CIRT 2017-2. The 16 participating insurers and reinsurers will then absorb the next 250 basis points of losses, or up to $452 million on CIRT 2017-2 and up to $57.5 million on CIRT 2017-2.
Coverage is provided based upon actual losses for a term of 10 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 anniversary of the effective date thereafter.
The coverage may be canceled by Fannie Mae at any time on or after the five-year anniversary of the effective date by paying a cancellation fee.
To date, Fannie Mae has acquired nearly $4 billion of insurance coverage on just under $160 billion of loans through the CIRT program. CIRT is one of several programs that the GSE uses to transfer credit risk on mortgages it insures, reducing taxpayer exposure. Including other forms of reinsurance, it has transferred credit risk on over $ 944.2 billion in single-family mortgages, measured at the time of transaction.