Fannie Mae transfers $789 million in mortgage credit risk

Fannie Mae is sharing more credit risk with the private sector, completing two offerings  consisting of single-family pools totaling 81,000 mortgages with a combined unpaid balance of $26.6 billion.

The government-sponsored enterprise transferred $789 million of mortgage credit risk to 21 private insurers and reinsurers, according to a press release Thursday. The pools are the sixth and seventh such transactions this year, adding to the $25.2 billion of insurance coverage the GSE has acquired through its Credit Insurance Risk Transfer program.

The deal was brokered by professional services firm Aon PLC and sub-brokered by a new partner, Protecdiv, a minority business enterprise that is an insurance and reinsurance broker. 

"We hope their participation will help draw more diverse-led firms into this space," said Rob Schaefer, vice president of Capital Markets at Fannie Mae. 

The first pool, CIRT 2023-6, covers 30,000 single-family mortgages with a combined outstanding UPB of $9.65 billion. The mortgages have loan-to-value ratios between 60.01% and 80%. Fannie said it would retain risk for the first 130 basis points of loss on the pool. After the $125 million loss would be absorbed, 20 reinsurers will cover the next 405 basis points of loss up to $391 million. 

The second pool, CIRT 2023-7, has 51,000 single-family mortgages with an unpaid principal balance of $16.9 billion and LTVs between 80.01% and 97%, according to Fannie. The GSE will retain risk for the first 155 basis points of loss, or $262 million, while 20 reinsurers will cover the next $398 million, or 235 basis points of loss.

The insurance is based on actual losses for 12.5 years, but the coverage can be reduced after a period of one year and each month thereafter depending on paydowns and serious delinquencies. Fannie can also pay a cancellation fee and opt out any time after five years. 

The GSE continues to forecast a recession in the second half of this year, but borrowers meanwhile account for delinquencies at the end of the first quarter near some of their lowest levels on record, according to the Mortgage Bankers Association. 

Fannie through the CIRT program is responsible for insurance on $850 billion of single-family loans, it said. The GSE shares its risk through CIRTs and other forms of credit-risk transfers. It passed Freddie Mac last year in single-family credit risk transfers for the first time since 2019. 

However, Freddie has a larger cumulative reference pool since its program began in 2013, totalling over $3.26 trillion for Freddie compared to over $2.98 trillion for Fannie. That is largely because Fannie Mae stopped all credit risk transfer activity between March 2020 and October 2021,  in part due to COVID-19's disruption of the markets, but also because of a change to the government-sponsored enterprises' capital framework by former Federal Housing Finance Agency Director Mark Calabria, which increased the risk weighting for these securities.