Fannie Mae unveils new form of credit insurance risk transfer for multifamily loans


Fannie Mae announced Monday that it completed its first-ever multi-tranche Credit Insurance Risk Transfer transaction, transferring risk on $10.9 billion in multifamily loans.

The covered loan pools for the transaction consist of 1,085 loans, secured by 1,091 multifamily properties. These loans were acquired by Fannie from February 2018 through June 2018, each having an unpaid principal balance of $30 million or less.

The deal, CIRT 2018-M02, is Fannie Mae’s fourth CIRT transaction as part of the company’s effort to increase the role of private capital in the multifamily mortgage market.

“We are happy to introduce our first tranched multifamily credit risk sharing transaction, which allowed us to expand reinsurer and insurer participation and realize favorable blended pricing on the tiered risk sharing,” Fannie Mae Multifamily Vice President Jonathan Gross said. “This new transaction transferred $273 million of risk to nine reinsurers and insurers.”

In the deal, which became effective as of Oct. 1, 2018, Fannie Mae will retain the risk on the first 150 basis points of losses. If the A tranche is exhausted, reinsurers will cover the next 150 to 300 basis points of loss on the pool. However, if the B tranche is exhausted, reinsurers are expected to cover the next 300 to 400 basis points of losses on the reference pool.

That being said, once the pool has experienced 400 basis points of losses, Fannie will be responsible for any further losses.

“This program, aimed at sharing risk with diversified reinsurer and insurer counterparties specifically, supplements our Delegated Underwriting and Servicing program where originating lenders routinely share approximately one-third of the credit risk on our multifamily loans,” Gross continued. “Our multifamily CIRT program helps us mitigate risk on the other two-thirds of credit risk, benefitting U.S. taxpayers. We plan to return to the market next year with additional multifamily CIRT transactions.”

Since 2016, in addition to the risk transferred to its DUS lender partners, the government-sponsored enterprise has transferred a portion of the credit risk on multifamily mortgages with an aggregate unpaid principal balance of more than $39.5 billion through its CIRT program.

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