Fannie Mae is making moves again—this time it has completed its second set of traditional Credit Insurance Risk Transfer, (CIRT), to the tune of $19.8 billion in loan coverage. As of Monday when the deal was announced, Fannie Mae has acquired almost $4.3 billion of coverage on around $170 billion in loans through the program.
The two transactions, 2017-3 and 2017-4, cover a total of $17.7 billion and 2.2 billion in initial principle balance, respectively, and took effect May 1, 2017. They both have a 10 year term with an annual premium of 14.04 base points. Loans in both pools were acquired between January 2016 and January 2017, are fixed-rate, and have a loan-to-value ratio greater than 80 percent but less than 98 percent. Loans were transferred to 17 different insurers and reinsurers, and Fannie Mae reserves the right to cancel any time after the five-year mark with a cancelation fee.
Fannie Mae retains the rest for the first 50 basis points on 2017-3. If this amount—$88.4 million—is lost, reinsurers will cover the next 275 basis points up to around $486.2 million. For 2017-4, Fannie Mae also covers the first 50 basis points for a total potential loss of $10.9 million, after which time an insurer will cover the remaining 275 basis points for a coverage of $60.1 million
Fannie Mae’s goal with their credit risk management approach is to “act as an intermediary between lenders and investors . . . to develop broad and liquid markets for credit risk that reduce taxpayer risk, minimize the impact to borrowers and lenders, offer an attractive investment option for investors in mortgage credit, and help build a stronger housing finance system.”
You can find all the details of this CIRT deal, as well as past CIRT transactions on Fannie Mae’s website.