Fannie Mae executes $1.3bn credit risk transfer deals

Fannie Mae, the US government-backed financial institution that provides liquidity to the US mortgage markets by buying mortgages from lenders, has transferred up to $1.3 billion of mortgage credit risk to the private market through two front-end credit insurance risk transfer (CIRT) transactions.

The deals are a part of Fannie Mae's effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market.

CIRT FE 2020-1 and CIRT FE 2020-2 together cover up to $39.6 billion in unpaid principal balance of 21-year to 30-year original-term, fixed-rate loans, including loans previously acquired from November 2019 through January 2020 and also loans to-be acquired between February 2020 and January 2021.

Fannie Mae stated that it has been "significantly restricted" in its ability to enter into credit risk transfer transactions due to detrimental market conditions as a result of the COVID-19 outbreak. Fannie Mae does not anticipate being able to enter into such transactions until market conditions improve.

Rob Schaefer, vice president for credit enhancement strategy & management at Fannie Mae, said: "CIRT FE 2020-1 and FE 2020-2 secure approximately $729 million and $600 million of coverage, respectively. Both are record-high levels of coverage for a low and high loan-to-value ratio CIRT transaction. These transactions were executed in March, prior to the enormous changes that have since impacted our economy and our daily lives.

"We appreciate our partnership with the 20 insurers and reinsurers that wrote coverage for these deals, and hope that they, their co-workers, and families all stay safe during this global crisis. These participating insurers and reinsurers have Fannie Mae's commitment that we will use all of our resources to assist borrowers through temporary hardships related to COVID-19, and that we are adjusting our credit guidelines for lender partners to manage the risk of our new acquisitions while ensuring we meet our mission to provide liquidity to the mortgage market."