Fannie Mae [1] recently announced that it has completed its sixth Credit Insurance Risk Transfer transaction of 2019, covering loans previously acquired by the company. The deal, CIRT 2019-3, covers $14.8 billion in unpaid principal balance (UPB) of 21-year to 30-year original term fixed-rate loans. According to Fannie Mae, this transaction is part of the GSE’s effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market.
“With twenty-one insurers and reinsurers providing coverage, demand for this transaction was among the strongest we’ve ever had,” said Rob Schaefer, VP 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.