Fannie Mae doubles down on credit-risk insurance transfers

Fannie Mae announced Tuesday that it has executed two credit-risk insurance transfers associated with mortgages acquired respectively in the second and third quarters of 2021.

The two latest transactions follow in the wake of the government-sponsored enterprise’s first deal of the year and the release of a finalized capital rule aimed at facilitating broader risk-sharing.

In Fannie’s second deal, CIRT 2022-2, it retained 25 basis points of loss on a $26.5 billion covered loan pool of 87,400 mortgages. If the retention layer is exhausted, 22 insurers and reinsurers will cover the next 335 basis points of loss in the pool, up to a maximum coverage of $889 million. The covered pool primarily consists of mortgages with loan-to-value ratios of 60% to 80%.

For the third transaction, 2022-3, Fannie retained the first 67 basis points of loss on a $23.3 billion covered loan pool of 76,600 mortgages. If the retention layer is exhausted, 23 insurers and reinsurers will cover the next 385 basis points of loss, up to a maximum coverage of $898 million. The covered pool includes mortgages with LTVs greater than 80% but no higher than 97%.

As is typical, loan performance may lead to a yearly adjustment in coverage. Coverage is based on actual losses over 12.5 years. Fannie can cancel coverage after the transactions’ five-year anniversary for a fee.

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

Fannie also has issued at least two Connecticut Avenue Securities deals this year, an alternate form of risk sharing that a recently finalized capital rule was designed to facilitate. However, recent Ukraine-related market volatility reportedly delayed one of these transactions last month.

The circumstance highlights why the availability of multiple types of risk-sharing vehicles holds value for the government sponsored enterprises.

“One might reasonably expect that different points in the cycle are going to be more attractive to certain executions versus others,” said Ed DeMarco, president of the Housing Policy Council and a former GSE regulator, in an interview.