Fannie Mae Moves Mortgage Credit Risk with CIRT Transactions

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Fannie Mae has completed its first two Credit Insurance Risk Transfer (CIRT) transactions of 2020, CIRT 2020-1 and CIRT 2020-2, which together cover $30.7 billion in unpaid principal balance of 21-year to 30-year original term fixed-rate loans, previously acquired from July 2019 through October 2019.

Combined, these two deals transferred nearly $1 billion of mortgage credit risk.

With CIRT 2020-1, Fannie Mae will retain risk for the first 35 basis points of loss on an $18.5 billion pool of single-family loans with loan-to-value ratios greater than 60% and less than or equal to 80%. If the $64.6 million retention layer is exhausted, 23 insurers and reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $553.6 million.

With CIRT 2020-2, the GSE will retain risk for the first 40 basis points of loss on a $12.2 billion pool of single-family loans with loan-to-value ratios greater than 80% and less than or equal to 97%. If the $48.8 million retention layer is exhausted, 17 insurers and reinsurers will cover the next 350 basis points of loss on the pool, up to a maximum coverage of approximately $427.2 million.

Coverage for these deals is provided based upon 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.

“Over the past six years, we have built a market for credit risk that, with each new transaction, continues to draw on the growing interest of insurers and reinsurers,” says Fannie Mae’s Rob Schaefer. “We appreciate our partnership with the 23 insurers and reinsurers that wrote coverage for these deals, a new record-high level of participation for a single CIRT transaction.”

Photo: Rob Schaefer

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