Fannie Mae completes $14bn credit risk transfer deals

Fannie Mae, the US government-backed financial institution that provides liquidity to the US mortgage markets by buying mortgages from lenders, has completed two new front-end credit insurance risk transfer (CIRT) deals.

The deals will together cover up to $14 billion of loans to be acquired by Fannie Mae between May 2019 through April 2020, and transfer up to $455 million of credit risk on those covered loans.

The transactions are a part of Fannie Mae's effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. Fannie Mae has committed to acquire about $9.3 billion of insurance coverage on $359 billion of single-family loans through the CIRT programme to date.

Both the coverage and pricing of the deals are committed for 12 months, beginning with May 2019 deliveries.

With CIRT FE 2019-1, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $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 $40 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 $260 million.

With CIRT FE 2019-2, Fannie Mae will retain risk for the first 50 basis points of loss on a $6 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 $30 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 $195 million.

"Nineteen insurers and reinsurers participated on these two front-end CIRT transactions, providing Fannie Mae the certainty of forward coverage on loans that we will acquire over a 12-month period," said Rob Schaefer, vice president for credit enhancement strategy & management, Fannie Mae. "We are proud to be a leader in building and supporting the market for transferring single-family mortgage credit risk to private sources of capital."

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