Fannie Mae announced recently that it has secured commitments for a second front-end Credit Insurance Risk Transfer (CIRT) transaction. The risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans, and the insurance coverage will be effective as soon as the loans are acquired. Coverage and pricing are committed for 12 months, beginning with first quarter 2017 deliveries.
The transaction will move a part of credit risk on pools of single-family loans with a combined unpaid principal balance of approximately $15 billion to a group of reinsurers. This will consist of 30-year fixed-rate loans with loan-to-loan value ratios greater than 60 percent and less than or equal to 80 percent.
Fannie Mae will continue to offer its previous CIRT transactions.
“With this transaction, Fannie Mae pioneers new ground by securing the longest and largest forward commitment ever transacted for a GSE risk transfer transaction, locking in our pricing for the full 2017 calendar year,” said Rob Schaefer, VP for Credit Enhancement Strategy & Management. “This deal also demonstrates our continued market leadership by providing a high level of transparency with respect to the deal pricing and structure.”
Fannie Mae’s first Credit Insurance Risk Transfer took place in 2016. At that time, DS News took the opportunity to sit down with Schaefer, to get an insider's perspective on what potential bidders can anticipate with these transactions in 2017. “Risk transfer now [is] part of Fannie Mae's core strategy for how we manage our own risk, and how we protect against unexpected market stress cycles, and also protect tax payers by transferring risk away from Fannie Mae to private capital,” he said.
Schaefer went on to discuss the unique transparency of CIRT transactions. "We have made available, for free, millions and millions of data records on our loans going all the way back to loans that we've acquired since 2000, which provides an enormous free database for anybody to go in and analyze the data, build models. It's almost unprecedented in the world of insurance and reinsurance to have that much data to start off with to help understand the risk," he said.
For the first 50 basis points of loss, Fannie Mae will retain risk on a pool of loans of approximately $15 billion. Fannie Mae’s complete disclosure of last year’s CIRT program can be found here.