Fannie Mae (FNMA/OTC) announced today that it has completed its first two Credit Insurance Risk Transfer™ (CIRT™) transactions of 2020. CIRT 2020-1 and CIRT 2020-2 together cover $30.7 billion in unpaid principal balance of 21-year to 30-year original term fixed rate loans, previously acquired from July 2019 through October 2019. Combined, these two deals transferred nearly $1 billion of mortgage credit risk, 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 $11.6 billion of insurance coverage on $435.2 billion of single-family loans through the CIRT program, measured at the time of issuance, for both post-acquisition (bulk) 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. We appreciate our partnership with the twenty-three insurers and reinsurers that wrote coverage for these deals, a new record-high level of participation for a single CIRT transaction,” said Rob Schaefer, Vice President for Credit Enhancement Strategy & Management at Fannie Mae.
With CIRT 2020-1, which became effective January 1, 2020, Fannie Mae will retain 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 percent and less than or equal to 80 percent. If the $64.6 million retention layer is exhausted, twenty-three insurers and reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $553.6 million. With CIRT 2020-2, which also became effective January 1, 2020, Fannie Mae will retain risk for the first 40 basis points of loss on a $12.2 billion pool of single-family loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent. If the $48.8 million retention layer is exhausted, seventeen insurers and reinsurers will cover the next 350 basis points of loss on the pool, up to a maximum coverage of approximately $427.2 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.
As of December 31, 2019, $1.3 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 its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities™ (CAS), and other forms of risk transfer that allow private capital to gain exposure to the U.S. housing market.
To promote transparency and to help insurers and reinsurers evaluate our program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages. This includes Fannie Mae’s innovative Data Dynamics® tool that enables market participants to interact with and analyze both CIRT deals that are currently outstanding in the market and Fannie Mae’s historical loan dataset. For more information on individual CIRT transactions, including pricing and calendar, please visit our Credit Insurance Risk Transfer website.
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