Fannie Mae has completed its seventh credit insurance risk transfer ("CIRT") transaction of 2019, covering loans previously acquired by the company.
In a statement, Fannie Mae said that the deal, CIRT 2019-4, covered $10.5 billion in unpaid principal balance of 21-year to 30-year original term fixed rate loans, as part of Fannie Mae's ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market.
To date, Fannie Mae has committed to acquire approximately $10.3 billion of insurance coverage on $386 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions.
"As the CIRT program continues to grow and evolve, Fannie Mae remains committed to increasing liquidity in the risk-sharing market through the regularity and transparency of our credit risk transfer transactions," said Rob Schaefer, vice president for credit enhancement strategy and management at Fannie Mae. "We are proud to be the leading manager of single-family residential credit risk in the industry, and to have taken a leading role in partnering with private sources of capital in transferring mortgage credit risk, building a market that barely existed even five years ago".
With CIRT 2019-4, which became effective September 1, 2019, Fannie Mae will retain risk for the first 40 basis points of loss on a $10.5 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 $42 million retention layer is exhausted, 15 insurers and reinsurers will cover the next 375 basis points of loss on the pool, up to a maximum coverage of approximately $392 million.
Coverage for these deals is provided based on 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.
The covered loan pool for the CIRT 2019-4 consists of fixed-rate loans that were acquired by Fannie Mae from December 2018 through June 2019.
Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance close to $1.9 trillion, including the full contract amount for front-end CIRT transactions, measured at the time of transaction, through its credit risk transfer efforts, including CIRT, Connecticut Avenue Securities ("CAS"), and other forms of risk transfer.
As of September 30, 2019, $1.2 trillion in outstanding unpaid principal balance of loans in Fannie Mae's single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. Fannie Mae said that, depending on market conditions and other factors, it expects to continue coming to market with CIRT and CAS deals that allow private capital to gain exposure to the U.S. housing market.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].