Fannie Mae finalizes two additional credit insurance risk transfers

The newest deals, CIRT 2022-2 and CIRT 2022-3, together transferred $1.8 billion of mortgage credit risk to private insurers and reinsurers. 

“We appreciate our continued partnership with the 25 insurers and reinsurers that have committed to write coverage for these two deals,” said Rob Schaefer, Fannie Mae’s vice president for capital markets. 

The initial deal of 2022, CIRT 2022-1, also transferred millions of dollars of credit risk to a group of private insurers and reinsurers. That credit risk is tied to a $26.1 billion reference pool of single-family mortgages. 

As part of that initial deal, Fannie Mae will retain risk for the first 25 basis points of any loss on the $26.1 billion reference loan pool. If that $65.3 million retention layer is tapped, then the 22 insurers and reinsurers will cover the next 295 basis point of loss on the pool, up to $770.7 million. 

CIRT offerings 2 and 3 work similarly. The covered loan pool for CIRT 2022-2 consists of some 87,400 single-family mortgage loans with an outstanding unpaid principal balance of $26.5 billion. The covered loan pool for CIRT 2022-3 involves 76,600 single-family mortgage loans with an outstanding unpaid principal balance of $23.3 billion. 

With CIRT 2022-2, Fannie Mae will retain risk for the first 25 basis points of loss on the $26.5 billion covered loan pool, representing a $66.3 million retention layer. If that layer is exhausted, then the 22 insurers and reinsurers that are part of the CIRT deal will cover the next 335 basis points of loss on the pool — up to a maximum coverage of about $889 million. 

With CIRT 2022-3, Fannie Mae will retain risk for the first 65 basis points of loss on the $23.3 billion covered loan pool. If that $151.6 million retention layer is used up, then the 23 insurers and reinsurers that are part of the deal will cover the next 385 basis points of loss — up to a maximum coverage of some $898 million.

The coverage terms for the latest CIRT deals, like the initial deal of 2022, are based on actual losses for a term of 12.5 years. Fannie Mae can cancel the coverage on each deal after five years by paying a cancellation fee.

“Since inception to date, Fannie Mae has acquired approximately $17.6 billion of insurance coverage on $612 billion of single-family loans through the CIRT program,” Fannie Mae said in a statement announcing the new CIRT transactions.

In addition, Fannie Mae also is transferring mortgage credit risk to the private market through its separate Connecticut Avenue Securities (CAS) real estate mortgage investment conduit, or REMIC, program. It’s most recent credit-risk transfer (CRT) transaction via the CAS program — and third of the year — was a $1.24 billion note offering backed by a reference loan pool of 150,395 primarily single-family mortgages valued at $44.4 billion.

With the completion of that third CRT transaction unveiled in March, called CAS Series 2022-R03, Fannie Mae will have brought a total of 47 CAS deals to market and issued over $53 billion in notes since its initial offering in 2013. Through the CAS program, the agency has transferred a portion of the credit risk to private investors on some $1.7 trillion in single-family mortgage loans, as measured at the time of the transaction.