Friday, December 12, 2014

Fannie Mae Announces Risk Transfer Deal to Increase Role of Private Capital in Mortgage Market

Fannie Mae Announces Risk Transfer Deal to Increase Role of Private Capital in Mortgage Market


Fannie Mae has expanded its risk sharing offeringswith Wednesday's announcement of the credit insurance risk transfer (CIRT) deal, which transfers the credit risk on a pool of loans from the taxpayers to a panel of domestic reinsurers

The goal of CIRT is to reduce the risk to taxpayers by increasing the role of private capital in the mortgage market. The new deal also fulfills one of the 2014 Conservatorship Scorecard goals, which was to complete a variety of risk sharing transactions in addition to the Connecticut Avenue Securities (C-deals) series announced by Fannie Mae in October 2013.

"This unique transaction uses actual losses to calculate benefits, for which risk investors have expressed a preference,” said Andrew Bon Salle, EVP of single-family underwriting, pricing and capital markets at Fannie Mae. "This deal complements our current risk sharing offerings focused on capital markets investors and mortgage insurers, and we expect it will be a template for similar transactions that we may execute in the future.

The reinsurance market is an attractive potential source of private capital because it currently bears a small amount of U.S. residential mortgage risk. We are pleased to test new and innovative ways to diversify our risk sharing counterparties and to structure this deal in a manner that promotes efficiency and safety."

Fannie Mae is growing its products for mortgage investors.
After putting together several successful risk-sharing deals (see the list of coverage by clicking here), today the government-sponsored enterprise unveiled a new product.
The credit insurance risk transfer deal shifts credit risk on a pool of loans to a panel of domestic reinsurers.
The company said the offer is proof that Fannie Mae is diversifying the role of private capital in the secondary mortgage market. Earlier this week, the GSE launched a 3% down mortgage product.
“The credit insurance risk transfer deal shifts credit risk on a pool of loans to a panel of domestic reinsurers,” the company said in a statement.
“This unique transaction uses actual losses to calculate benefits, for which risk investors have expressed a preference,” said Andrew Bon Salle, EVP of single-family underwriting, pricing and capital markets.
Bon Salle said he expects CIRT will be a template for similar transactions Fannie may execute in the future.
“The reinsurance market is an attractive potential source of private capital because it currently bears a small amount of U.S. residential mortgage risk. We are pleased to test new and innovative ways to diversify our risk sharing counterparties and to structure this deal in a manner that promotes efficiency and safety.”
In CIRT-2014-1, Fannie Mae retains risk on the first 50 basis points of loss on a $6.419 billion pool of loans.
Fannie Mae also provided actual loss coverage for the next 300 basis points of loss on the $6.419 billion pool, up to a maximum coverage of approximately $193 million, should the former run out.
Duration is 10 years. However, the aggregate coverage amount may be reduced at the 3-year, 5-year and 7-year anniversaries from the effective date.

1 comment:

  1. Great collection. Mind boggling on the amount of pro FnF articles out there now

    keep up the good work

    rocco

    ReplyDelete

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