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Fannie Mae completes 2 credit insurance risk transfer transactions

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Fannie Mae completes 2 credit insurance risk transfer transactions

Fannie Mae completed two credit insurance risk transfer transactions that cover $22 billion of existing loans in its portfolio.

The two deals, CIRT 2018-4 and CIRT 2018-5, transferred $663 million of risk to 17 reinsurers and insurers.

In CIRT 2018-4, Fannie Mae will retain risk for the first 60 basis points of loss on a $19 billion pool of loans. If the $116 million retention layer is exhausted, reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of about $580 million.

In CIRT 2018-5, the company will retain risk for the first 60 basis points of loss on a $2.7 billion pool of loans. If the $16.5 million retention layer is exhausted, insurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of roughly $82.5 million.

Both deals became effective June 1.

The covered loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios greater than 60% and less than or equal to 80%, and original terms between 21 and 30 years. Fannie Mae acquired the loans between October 2017 and March 2018.

Coverage for these deals is provided based upon actual losses for a term of 10 years. The aggregate coverage amount may be reduced at the one-year anniversary and each month thereafter, depending on the paydown of the insured pool and the principal amount of insured loans that become seriously delinquent. Coverage may be canceled by Fannie Mae at any time on or after the fifth anniversary of the effective date by paying a cancellation fee.

The deals are part of Fannie Mae's effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market, the company said in a release. To date, Fannie Mae has acquired about $6.9 billion of insurance coverage on $278 billion of loans through the credit insurance risk transfer program.