Fannie Mae executes 2 credit insurance risk transfer transactions

Fannie Mae executed its second and third credit insurance risk transfer transactions of 2022. CIRT 2022-2 and CIRT 2022-3, which became effective Feb. 1, together transferred $1.8 billion of mortgage credit risk to private insurers and reinsurers.

The covered loan pool for CIRT 2022-2 consists of about 87,400 single-family mortgage loans with an outstanding unpaid principal balance of approximately $26.5 billion. The covered pool includes collateral with loan-to-value ratios of 60.01% to 80.00% that were acquired between April 2021 and June 2021.

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. If the $66.3 million retention layer is exhausted, 22 insurers and reinsurers will cover the next 335 basis points of loss on the pool, up to a maximum coverage of roughly $889 million.

On the other hand, the covered loan pool for CIRT 2022-3 is comprised of about 76,600 single-family mortgage loans with an outstanding unpaid principal balance of approximately $23.3 billion. The covered pool includes collateral with loan-to-value ratios greater than 80% and less than or equal to 97% that were acquired between July 2021 and September 2021.

Under 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 the $151.6 million retention layer is exhausted, 23 insurers and reinsurers will cover the next 385 basis points of loss on the pool, up to a maximum coverage of approximately $898 million.

The loans included in both transactions are fixed-rate, generally 30-year term, fully amortizing mortgages, according to a news release.

The coverage for the deal is provided based upon actual losses for a 12.5-year term. The aggregate coverage amount may be decreased at the first anniversary and each month afterward depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent, according to the release. Fannie Mae may cancel the coverage on each transaction at any time on or after the fifth anniversary of the effective date through payment of a cancellation fee.