Fannie Mae has completed a groundbreaking single-family transaction through its Credit Insurance Risk Transfer program that will close out its activity in this area for the year.
The government-sponsored enterprise transferred $1.2 billion in risk on a pool of mortgages with an unpaid principal balance of $30.7 billion through the CIRT deal, which was the biggest in its category to date. A group of 20 insurers and reinsurers are providing coverage for it.
“CIRT 2021-2 transferred the largest amount of mortgage credit risk through a single CIRT transaction since the inception of the program in 2014,” said Rob Schaefer, vice president for credit enhancement strategy and management at Fannie Mae, in a press release.
In the transaction, Fannie takes responsibility for the first 65 basis points of loss on $30.7 billion mortgages acquired between April and June of this year. After that, the insurers and reinsurers will step in to cover the next 385 basis points of loss up to a maximum of approximately $1.18 billion. The mortgages involved have loan-to-value ratios of above 80% but no higher than 97% and are primarily 30-year, fixed-rate products.
The coverage is based on actual loan losses experienced over a period of 12.5 years. Fannie can cancel that coverage any time after the five-year anniversary of the effective date, Oct. 1, 2021. After the first anniversary — and depending on certain circumstances related to insured pool paydowns and principal amount of seriously delinquent loans — reductions in the aggregate coverage amount become possible on a monthly basis.
The unusually large single-family CIRT deal comes after a period in which Fannie generally pulled back from credit risk transfer activity following a revision to the GSE capital framework under the Trump administration. The revision called for an amount of funds to be held against risk transfers that
