Fannie Mae announced that it secured commitments for a front-end Credit Insurance Risk Transfer (CIRT) transaction. The risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans, so the insurance coverage will be effective as soon as loans are acquired. This process is known as a “flow” basis. This will begin in the 2017 second-quarter deliveries and is expected to be filled over the course of nine months.
Fannie Mae’s transaction will shift a portion of the credit risk on pools of single-family loans with a combined unpaid principal balance of about $5.2 billion to a group of reinsurers that are affiliates of mortgage insurers approved to write primary coverage on loans sold to Fannie Mae. The covered loan pool will consist of 30-year fixed-rate loans with loan-to-value (LTV) ratios greater than 80 percent and less than or equal to 97 percent. Primary mortgage insurance coverage will be applied to all loans covered by this new transaction and any credit losses not covered by the underlying primary mortgage insurance will be protected by CIRT.
"Our three front-end CIRT transactions complement the coverage we acquire on a 'bulk' basis through Connecticut Avenue Securities (CAS) and our traditional CIRT, with coverage written by both diversified traditional reinsurers as well as mono-line affiliates of our approved mortgage insurers,” said Rob Schaefer, VP for Fannie Mae’s Credit Enhancement Strategy & Management. “Our CIRT and CAS transactions cover loans with LTV ratios both above and below 80 percent. We are pleased with the robust interest this program is attracting. We remain committed to the transparency of these transactions, which support our goal to transfer credit risk away from taxpayers while providing us certainty of coverage."
The risk on the first 50 basis points of loss on an approximately $5.2 billion pool of loans will be retained by Fannie Mae. The participating mortgage insurance companies will cover the next 265 basis points of loss on the pool, up to a maximum coverage of approximately $138 million if this approximately $26 million retention layer is exhausted.
Pricing for the new and past CIRT transactions can be found here