Fannie Mae Completes First Credit Insurance Risk Transfer of 2022

Fannie Mae has entered into its first credit insurance risk transfer agreement of the year, which covers $26.1 billion in principal outstanding balances of mortgages acquired in the first quarter of 2022.

The transaction shows why government-sponsored companies like Fannie prefer to use a wide range of risk-sharing alternatives. Another vehicle Fannie has used to diversify its strategies, credit risk transfers known as Connecticut Avenue Securities, the show would have been delayed last week due to market turmoil The Russian invasion of Ukraine.

Fannie’s regulator, the Federal Housing Finance Agency, had earlier sought to impose more restrictive capital rules on CRT deals under the Trump administration, citing concerns about their risk. As a result, Fannie suspended its CRT program in response until the Biden administration signaled an intention to ease these restrictions last year. And just last week, the FHFA officially instituted a rule that reduce these restrictions, paving the way for a wider range of risk sharing to be used.

One of the purposes of risk sharing with the private sector is to protect taxpayers, who are exposed to government-sponsored companies like Fannie, a major mortgage investor. Fannie and fellow GSE Freddie Mac have had ties to the Treasury since entering government conservatorship during the Great Recession property crash. The Trump administration wanted GSEs out of the trusteeship, but currently they are seen as more likely to stay there or be reconfigured as utilities.

Under the most recent CIRT agreement, Fannie is working with what has been a stable group of insurance business partners to transfer $770.7 million of risk from a loan pool that consists primarily of 30-year fixed rate mortgages.

“CIRT 2022-1 begins another active year of CIRT issuance for Fannie Mae. We appreciate our continued partnership with the 22 insurers and reinsurers who have purchased coverage for this agreement,” said Rob Schaefer, vice president of Fannie’s capital markets division. in a press release.

After depleting a retention layer of $65.3 million representing the first 25 basis points of loss that Fannie Mae will retain, these insurers and reinsurers will cover the next 295 basis points, up to a maximum coverage of nearly $771 million.

Fannie described loans under the most recent CIRT agreement as secured to “rigorous” standards with loan-to-value ratios in the range of 60-80%. Loan performance may lead to annual coverage adjustment. Coverage is based on actual losses over 12.5 years. Fannie may cancel coverage after the fifth anniversary of transactions for a fee.

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