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Fannie Mae completes 2 credit insurance risk transfer transactions

Fannie Mae has completed two Credit Insurance Risk Transfer transactions that cover $10 billion of existing loans in the company's portfolio.

The two deals transferred $311 million of risk to 16 reinsurers and insurers and became effective April 1.

In CIRT 2018-2, Fannie Mae will retain risk for the first 50 basis points of loss on a $9 billion pool of loans. If the $45.2 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 $271 million. In CIRT 2018-3, the government-sponsored enterprise will retain risk for the first 50 basis points of loss on a $1.3 billion pool of loans. If this $6.7 million retention layer is exhausted, an insurer will cover the next 300 basis points of loss on the pool, up to a maximum coverage of about $40 million.

The covered loan pools for the two deals consist of 21- to 30-year fixed-rate loans with loan-to-value ratios greater than 80% and less than or equal to 97%. Fannie Mae acquired the loans between April 2017 and September 2017.

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