Fannie Mae announced on Thursday the completion of another risk sharing transaction as part of an ongoing effort to reduce risk to the taxpayer by increasing the role of private capital in the mortgage market.
This transaction is the fourth in Fannie Mae's Credit Insurance Risk Transfer (CIRT) series, and third since the start of 2015. In the CIRT series, credit risk for a pool of loans is transferred to a panel of reinsurers. The latest transaction, named CIRT-2015-3, included international reinsurers for the second time in four transactions, according to Fannie Mae. The transaction became effective on August 21, 2015.
"As the leading manager of single-family residential credit risk in the industry, we are focused on building a safer, sustainable housing system and our CIRT deals help these efforts," said Rob Schaefer, VP for credit enhancement strategy & management. "Reinsurers seem to understand and appreciate our approach to managing credit risk and as a result, we’ve seen continued interest in our CIRT program. We look forward to exploring new ways to structure these transactions in the future and to growing the program and the number of reinsurers we work with as well."
"As the leading manager of single-family residential credit risk in the industry, we are focused on building a safer, sustainable housing system and our CIRT deals help these efforts."
In the CIRT-2015-3 transaction, Fannie Mae is retaining the risk for the first 50 basis points of loss on a $7 billion pool of loans (totaling $35.2 million). If this layer is exhausted, reinsurers will cover the next 250 basis points of loss on the pool up to $176.2 million. The pool of loans consists of 30-year fixed rate loans acquired by Fannie Mae from September 2014 to December 2014 with loan-to-value (LTV) ratios of between 60 and 80 percent.
Fannie Mae continues to reduce taxpayer risk through the CIRT program and its flagship Connecticut Avenue Securities (CAS) series program, as well as other forms of risk transfer. Since 2013, Fannie Mae has conducted eight CAS transactions. Through a combined 12 transactions between the CIRT and CAS programs, Fannie Mae has sold a portion of credit risk on $419 billion of loans and 60 percent of recent acquisitions. The transactions are structured so that Fannie Mae's projected losses would be limited to the first-loss credit risk (50 basis points) the GSE retains if the loans covered in the transaction experience stress comparable to the 2008 housing crisis.
These transactions are structured so that if the covered loans experienced the same stress as the most recent housing crisis, Fannie Mae’s projected losses would be limited to the small first-loss piece of credit risk retained by the company
Fannie Mae plans to continue transferring credit risk to the private market through more CIRT and CAS transactions. For more on Fannie Mae's CIRT program or to see the four individual transactions, click here. For more on Fannie Mae's overall credit risk sharing initiative, click here.