Fannie Mae has released the terms of its two newest Credit-Insurance Risk Transfer (CIRT) deals that both target high LTV loans and one of which relies on a single, multi-line insurance company with both primary and reinsurance capacity. In our view, Fannie is continuing to test ways to obtain credit-risk mitigation on HLTV mortgages that, with some recourse or participation by an originator, could meet charter-coverage levels without reliance on loan-level MI. Pricing will, we think, dictate winners and losers on the insurance front because risk-transfer deals are, in contrast to old-style GSE guarantees singularly unforgiving on added cost. As rates rise and investor demand no longer supports spreads well above risk-adjusted requirements, the most cost-effective form of credit enhancement acceptable to investors will rule the day.

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