These deals totaled $1 billion in risk offloaded from Fannie Mae to private companies, continuing the agency's commitment to transferring more of its credit risk to the private sector.
The CIRT program transfers single-family credit risk from Fannie Mae to private reinsurers. This reduces Fannie Mae's exposure to losses, which benefits taxpayers and helps maintain the stability of the housing market. The insured loans are typically those with higher credit risk, such as loans to borrowers with lower down payments or those located in underserved or rural communities.
The two CIRT deals completed in 2020 involved a $500 million first-loss deal and a $500 million layer 2 Megaswitch Reinsurance transaction. The first-loss deal is for loans with original loan-to-value ratios of 80-97%. The second Megaswitch transaction involves loans with original loan-to-value ratios of 95-105%, most of whom are fixed interest rate loans. The Megaswitch Reinsurance structure creates incentives for servicers to maintain and improve performance on the underlying mortgages.
These two deals were led by Natixis, the global structured finance and capital markets corporate and investment banking division of Groupe BPCE, one of the largest banking groups in Europe. Natixis served as both lead underwriter and ceding agent for the transactions.
Overall, the completion of these two deals marks an important milestone for the CIRT program. It demonstrates that Fannie Mae is continuing to reduce its risk exposure while still providing access to mortgage financing for low- and moderate-income households. The completion of these two transactions is also a sign that the housing market is continuing to remain strong and stable despite the current economic environment.
Summary:
Fannie Mae recently completed its first two mortgage credit insurance risk transfer (CIRT) deals of 2020, involving a total risk offload of $1 billion from the agency to private companies. The two deals were led by Natixis and involved a $500 million first-loss deal and a $500 million layer 2 Megaswitch Reinsurance transaction. These deals mark an important milestone for the CIRT program and demonstrate that Fannie Mae is reducing its risk exposure while still increasing access to mortgage financing for low- and moderate-income households. The completion of these deals signals that the housing market as a whole is remaining strong and stable, even in the midst of the current economic environment.
This article was contributed on Oct 11, 2023
