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GSE Transfers Nearly $2B of Mortgage Credit Risk to Insurers

Fannie Mae has announced the execution of its second and third Credit Insurance Risk Transfer (CIRT) transactions of 2022.

As part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market, CIRT 2022-2 and CIRT 2022-3 together transferred $1.8 billion of mortgage credit risk to private insurers and reinsurers.

Since its inception, Fannie Mae has acquired nearly $17.6 billion of insurance coverage on $612 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition and front-end transactions.

"We appreciate our continued partnership with the 25 insurers and reinsurers that have committed to write coverage for these two deals," said Rob Schaefer, Fannie Mae VP for Capital Markets.

The covered loan pool for CIRT 2022-2 consists of approximately 87,400 single-family mortgage loans with an outstanding unpaid principal balance of approximately $26.5 billion. The covered pool includes collateral with loan-to-value ratios of 60.01 percent to 80.00 percent, which were acquired between April 2021 and June 2021. The covered loan pool for CIRT 2022-3 consists of approximately 76,600 single-family mortgage loans with an outstanding unpaid principal balance of approximately $23.3 billion. The covered pool includes collateral with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent, which were acquired between July 2021 and September 2021. The loans included in both transactions are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls.

With CIRT 2022-2, which became effective February 1, 2022, Fannie Mae will retain risk for the first 25 basis points of loss on the $26.5 billion covered loan pool. If the $66.3 million retention layer is exhausted, 22 insurers and reinsurers will cover the next 335 basis points of loss on the pool, up to a maximum coverage of approximately $889 million. With CIRT 2022-3, which also became effective February 1, 2022, Fannie Mae will retain risk for the first 65 basis points of loss on the $23.3 billion covered loan pool. If the $151.6 million retention layer is exhausted, 23 insurers and reinsurers will cover the next 385 basis points of loss on the pool, up to a maximum coverage of approximately $898 million.

Coverage for this deal 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, 2021, $750 billion in outstanding UPB of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction.

To read the full report, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport, with more than six years of writing experience. She has served as Editor-in-Chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington. She has covered events such as the Byron Nelson, Pac-12 Conferences, the Women in Dallas Film Festival, to freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, she is an avid jazz lover and reader. She can be reached at [email protected]
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