Fannie Mae Closes Out 2019 with Two Major CIRT Deals


Fannie Mae closed out 2019 with two major Credit Insurance Risk Transfer (CIRT) deals – part of the company’s ongoing efforts to reduce the risk to taxpayers on assets in its retained portfolio.

On Dec. 12, the company announced that it had completed its third and final multi-tranche Multifamily Credit Insurance Risk Transfer (MCIRT) transaction for the year covering a pool of approximately $9.9 billion of existing multifamily loans in the company’s portfolio. This was the seventh MCIRT transaction the company has completed.

And on Dec. 16 the government-sponsored enterprise announced its eighth and final Credit Insurance Risk Transfer deal for the year – a deal in which the company will retain risk for the first 15 basis points of loss on a $18.5 billion pool of single-family loans.

The first transaction consisted of 1,042 loans, secured by 1,060 multifamily properties, acquired by Fannie Mae from March 2019 through June 2019. Each loan has an unpaid principal balance of $30 million or less.

For that deal, which became effective November 1, Fannie Mae will retain risk on the first 75 basis points of losses on the reference pool.

The C tranche will transfer risk to reinsurers covering losses between 75 basis points and 150 basis points.

The B tranche will transfer risk to reinsurers covering losses between 150 and 275 basis points.

The A tranche will transfer risk to reinsurers covering losses between 275 and 400 basis points.

Once the pool has experienced 400 basis points of losses, the credit protection will be exhausted and Fannie Mae will be responsible for any further losses.

“Our most recent multifamily credit risk sharing transaction transferred approximately $293 million of risk to reinsurers and insurers,” says Jonathan Gross, vice president, multifamily, Fannie Mae, in a release. “Looking ahead to 2020 and depending on market conditions, we expect to complete approximately one MCIRT offering per quarter.”

The second transaction consisted of an unspecified number of fixed-rate single-family loans that were acquired by Fannie Mae from June 2018 through June 2019.

For this deal, which became effective October 1, Fannie Mae will retain risk for the first 15 basis points of loss on a $18.5 billion pool of single-family loans with loan-to-value ratios greater than 70% and less than or equal to 97%.

If the $27.8 million retention layer is exhausted, 21 insurers and reinsurers will cover the next 130 basis points of loss on the pool, up to a maximum coverage of approximately $241 million.

Coverage for these deals is provided based upon actual losses for a term of nine years. Depending on the pay-down 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 four-year anniversary of the effective date by paying a cancellation fee.

“With 21 insurers and reinsurers providing coverage, demand for this [single-family] transaction was again among the strongest we’ve ever had,” says Rob Schaefer, vice president for credit enhancement strategy and management at Fannie Mae, in a separate release. “With CIRT 2019-5, we expanded our coverage of 15- and 20-year fixed rate loans, relative to prior CIRT deals that covered similar product, by including loans with lower loan to value ratios. Additionally, we increased our risk transfer, relative to those prior deals, by extending the deal term from 7.5 years to nine years and reducing our first loss retention layer to 15 basis points. We appreciate the support of our reinsurer partners as they help us enhance and expand our CIRT program.”

Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance close to $2.0 trillion, which includes 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 and other forms of risk transfer.

As of September 30, $1.2 trillion in outstanding unpaid principal balance of loans in the firm’s single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction.

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