Fitch Rates Massachusetts HFA $11MM Housing Bonds 2008A Block III 'AA-'

Thu May 15, 2008 6:40pm EDT

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NEW YORK--(Business Wire)--
Fitch Ratings has assigned an 'AA-' rating to Massachusetts
Housing Finance Agency's (MassHousing) $11.01 million housing bonds,
2008 series A - Block III (variable rate - federally taxable). The
2008 series A Block III bonds are expected to be privately placed with
one investor this week. The 2008 series A Block III bonds are expected
to close on or about May 21, 2008. MassHousing plans to issue
additional 2008 series A bonds in blocks to total $100 million. To
date, $82.6 million of the 2008 A bonds have been issued. In addition,
Fitch has affirmed the 'AA-' rating on the $1.5 billion of housing
bonds outstanding under the parity resolution as of June 30, 2007.

   The 2008 series A Block III bonds are part of the 21st issuance
under a general resolution adopted by MassHousing on Dec. 10, 2002.
The 2008 series A Block III bond proceeds will be used to fund new
permanent mortgages for two properties that are already part of the
portfolio. Ashmont TOD Project is a 116 unit new construction mixed
use property located in Boston. Block III proceeds in the amount of
$6.6 million will be used to fund a new taxable loan to the
development which is one piece of the overall financing with multiple
sources. The net effect to the portfolio will be an additional $6.6
million in uninsured multifamily exposure. Briston Arms is a 154 unit
existing family housing development located in Cambridge. Block III
proceeds will be used to refinance an existing FHA insured second loan
which was not part of the portfolio and recapitalize the reserve and
replacement fund for this property. The new second loan will also
remain FHA insured and will now be a part of the portfolio. The net
effect to the portfolio from this loan will be an additional $3.8
million in uninsured multifamily exposure. Under MassHousing's
preventive preservation loan program the property owners will maintain
affordability restrictions. The 2008 series A Block III bond proceeds
will also be used to fund a debt service reserve fund (DSRF) in an
amount equaling six months of debt service on the bonds. The 2008
series A Block III bonds are subject to redemption at the option of
MassHousing on any interest payment date.

   The bonds' 'AA-' rating reflects the sound credit quality of the
loan portfolio and the projected over collateralization (OC) of the
bonds, as well as cash flow surpluses sufficient to offset potential
cash flow interruptions from future loan payment delinquencies,
adequate legal provisions of the resolution, and MassHousing's strong
programmatic oversight capabilities. Overall, the portfolio has
performed favorably. Credit concerns center on risks associated with
cyclical economic pressure on the regional housing market and the
ability of MassHousing to transfer surplus funds out of the resolution
if minimal asset parity requirements are met. Annual appropriation
risk associated with the Commonwealth of Massachusetts' 13A subsidy
program also exists, but has diminished as the contractual obligation
amount has declined significantly over the past several fiscal years.
For fiscal 2008, the commonwealth budget provided for funding of $4.5
million of the $7.3 million of the subsidy requested for the
portfolio.

   In January of 2007, the state's legislature introduced two bills
that if enacted may impose financial obligations on the agency. At
this time only one of these bills remain and it is uncertain what form
the final legislation will take and what effect, if any, it may have
on the agency and/or its housing bond program. Accordingly, Fitch will
continue to monitor the bills progress and comment on any credit
implications an enacted bill may have on the agency's housing bond
program.

   As of June 30, 2007, the portfolio consisted of 356 mortgages on
residential developments that were previously financed or anticipated
to be financed under the resolution. The aggregate outstanding
mortgage balance was approximately $1.17 billion, with an additional
$296 million in loans for which permanent commitments had been issued
but the funds had not yet been advanced. The portfolio also consisted
of 195 single-family loans, with an aggregate balance of $41.4
million, which were purchased for the housing bond resolution during
fiscal 2006. The single-family loans represent 3% of the total
outstanding portfolio. The agency expects to purchase an additional
$60 million in single family mortgage loans in the near future using
multifamily loan prepayments.

   Of the two-thirds of the portfolio (by outstanding loan balance)
that does not contain insured or guaranteed developments;
approximately 90% receive federal subsidy payments or receive
commonwealth subsidy payments. The remaining one-third of the
portfolio included the following insured properties: 46 FHA-insured
risk-sharing properties, with an aggregate outstanding balance of $347
million; eight properties, aggregating $27 million, insured by FHA
under its regular insurance program; and one development with a
balance of $12 million, secured by a Fannie Mae mortgage-backed
security (MBS) development. The portfolio has performed very well
since inception and represents some of MassHousing's best performing
loans. As of June 30, 2007, there was only one development (of the
356), with a total outstanding loan balance of $1.2 million, that was
experiencing mortgage payment, escrow, or replacement reserve
delinquencies.

   The most recent consolidated cash flow statement, which reflects
transactions through the 2008 series A - Block III bonds, demonstrates
that the program's asset parity position, in different prepayment
speed stress scenarios, is projected to stay above 110%. This
projected asset parity position is well above the 101% required by the
general resolution and reflects an OC level sufficient to support the
rating based on the composition of the portfolio.

   The nature of the portfolio has the potential to change
significantly as new loans are added to the program. The general
resolution permits various types of loan financings, including both
new and existing single-family and multifamily mortgages. Fitch's
ongoing credit analysis will be driven by the resolution's actual
asset parity position, portfolio composition and performance,
financial results, and cash-flow strength.

   Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Maura McGuigan, 212-908-0591
Kasia Pindak Reed, 212-908-0389
Media Relations:
Cindy Stoller, 212-908-0526

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