Fannie Mae (FNMA/OTCQB) announced today that it has completed its sixth Credit Insurance Risk Transfer™ (CIRT™) transaction of 2019, covering loans previously acquired by the company. The deal, CIRT 2019-3, covers $14.8 billion in unpaid principal balance of 21-year to 30-year original term fixed-rate loans as part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has committed to acquire approximately $10 billion of insurance coverage on $375 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions.
This deal marked the first time a 30-year bulk CIRT transaction was structured with an extended policy term of 12.5 years and a 40 basis point retention layer, compared to a 10-year policy term and a retention layer of between 50 and 60 basis points for similar past deals. These changes in the structure increased the risk transfer on the covered pool of loans.
“With twenty-one insurers and reinsurers providing coverage, demand for this transaction was among the strongest we’ve ever had,” said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management, Fannie Mae. “With this deal, the CIRT program reached an important milestone, having committed approximately $10 billion of risk transfer since the program’s first transaction in 2014. The successful growth and evolution of CIRT is founded on a partnership between Fannie Mae and participating insurers and reinsurers, reinforced by the transparency of the CIRT program and our leadership in managing single-family residential credit risk.”
With CIRT 2019-3, which became effective August 1, 2019, Fannie Mae will retain risk for the first 40 basis points of loss on a $14.8 billion pool of single-family loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent. If the $59 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $479 million.
Coverage for these deals is provided based upon actual losses for a term of 12.5 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 month thereafter. The coverage on each deal 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.
The covered loan pool for CIRT 2019-3 consists of fixed-rate loans that were acquired by Fannie Mae from December 2018 through June 2019. A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found at https://www.fanniemae.com/resources/file/credit-risk/pdf/cirt-deal-pricing-information.pdf.
Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of over $1.8 trillion, which includes the full contract amount for front-end CIRT transactions, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities™ (CAS), and other forms of risk transfer. As of June 30, 2019, $1.2 trillion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. Depending on market conditions and other factors, Fannie Mae expects to continue coming to market with CIRT and CAS deals that allow private capital to gain exposure to the U.S. housing market.
More information on Fannie Mae’s credit risk transfer activities is available at https://www.fanniemae.com/portal/funding-the-market/credit-risk/index.html.
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/FannieMae.