Fannie Finalizes Credit Risk Deal With National MI

Fannie Mae reports that it has finalized an agreement with National Mortgage Insurance Corp. (National MI) on a transaction to provide credit risk coverage on more than $5 billion in single-family mortgages.

The coverage is in keeping with the 2013 Conservatorship Scorecard goal of transferring risk to private sources of capital. The insurance became effective as of Sept. 1.

‘This insurance policy transfers credit risk away from taxpayers, which is an important element of creating a more sustainable housing finance system,’ says Andrew Bon Salle, executive vice president for underwriting, pricing and capital markets at Fannie Mae, in a statement. ‘We will continue working with the Federal Housing Finance Agency to meet the goals of the Conservatorship Scorecard for 2013 to reduce risk for Fannie Mae and taxpayers.’

The National MI policy covers certain loans acquired by Fannie Mae in the fourth quarter of 2012, each of which had an original loan-to-value (LTV) ratio between 70% and 80%. The terms of the policy result in Fannie Mae's exposure on these loans being reduced to approximately 50% LTV, subject to a deductible amount and aggregate loss limits.

Among other provisions, the Conservatorship Scorecard for 2013 asks Fannie Mae to transfer credit risk on at least $30 billion of single-family loans that the company owns.

Additional transactions are expected this year in order to meet the goals of the Scorecard.

In a separate statement, FHFA Chairman Edward DeMarco says the agency ‘is pleased that Fannie Mae has completed its first risk-sharing transaction, which provides mortgage insurance coverage on a pool of more than $5 billion in single-family mortgages.’

‘This transaction supports FHFA's 2013 Conservatorship Scorecard and FHFA's Strategic Plan for the Enterprise Conservatorships by transferring credit risk to the private sector and reducing Fannie Mae's footprint in the marketplace,’ DeMarco says. ‘This transaction also gives further insight into how the private sector prices mortgage credit risk, further reduces taxpayer exposure to that risk and demonstrates an approach to risk-sharing.’


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