TEXT - Fitch rates Massachusetts Housing Finance Agency bonds

Tue Nov 13, 2012 12:59pm EST

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Nov 13 - Fitch Ratings assigns an 'AA-' rating to the following series of
Massachusetts Housing Finance Agency's (HFA or MassHousing) 
bonds:  

--$25,065,000 housing bonds, 2012 series E;
--$21,445,000 housing bonds 2012 series F.

 

The bonds are expected to be sold the week of Nov. 12, 2012 and close on or 
about Nov. 29, 2012.  

Fitch also affirms the 'AA-' underlying rating on the $1.5 billion of parity 
housing bonds outstanding under the general resolution as of June 30, 2012. 

The Rating Outlook for the bonds is Stable. 

SECURITY: 

The 2012 series E&F parity bonds are special obligations of the agency and 
secured by mortgages and certain cash and investments held under the general 
resolution adopted by MassHousing on Dec. 10, 2002. 

KEY RATING DRIVERS: 

PORTFOLIO INSURANCE AND SUBSIDIES:  The majority of the current and projected 
multi-family mortgage portfolio consists of insured or subsidized loans.  
Approximately 64% of the mortgages (based on loan balance) are FHA insured, 
primarily under the Risk Sharing program. Of the remaining 36%, three-quarters 
of the dwellings receive federal or commonwealth subsidies. 

SEASONING AND DIVERSITY: The 374 multifamily developments, with outstanding loan
balances totaling $1.58 billion, represent a large, seasoned pool with 
geographic diversity throughout the state of Massachusetts. 

LOAN PERFORMANCE: The portfolio has exhibited sound performance history with 
only one mortgage, representing less than 0.1% of the portfolio by loan balance,
reported as delinquent in the last year.

CASH FLOW SUFFICIENCY: Stressed cash flow projections demonstrate sufficient 
coverage of debt service throughout the term of the bonds, as well as sufficient
reserves to offset potential cash flow interruptions from future potential loan 
payment delinquencies. 

STRONG PROGRAMMATIC OVERSIGHT: MassHousing's successful history of administering
its multifamily housing programs is viewed as a credit strength. 

ASSET PARITY REQUIREMENT: The program's current asset parity ratio is 114% based
on audited financial statements. The program's asset parity requirement per the 
trust estate is 101% and, if met, MassHousing can remove funds from the housing 
bond resolution. 

CREDIT PROFILE: 

The 2012 series E&F bonds are the 32th issuance under the general resolution and
are on parity with the $1.5 billion in outstanding bonds in the indenture. The 
2012 series E fixed-rate bond proceeds will be used to finance four multifamily 
Risk Share loans with a 50% split of the risk between HUD and Mass Housing. The 
2012 series F fixed-rate bond proceeds will be used to defease and redeem on 
Jan. 1, 2013 one outstanding series of rental housing mortgage revenue bonds 
(2002 series H) issued under a prior MassHousing general bond resolution. The 
proceeds of the F bonds, as well as other funds available under the resolution, 
will be used to acquire United States treasury obligations, which will be 
deposited with the trustee and used to redeem the prior bonds. As part of the 
redemption of the outstanding multifamily bonds, three loans totaling $22 
million (representing 3 projects) will transfer into the housing bond portfolio.
Two of the multifamily loans are uninsured and unsubsidized and one of the loans
is insured under the Risk Share program with a 50%/50% split between HUD and 
Mass Housing. A debt service reserve fund in an amount equaling six months of 
maximum annual debt service on the bonds will be funded from existing cash under
the resolution.     

 

The portfolio currently consists of 374 multifamily developments that were 
previously financed under or transferred into the resolution. The aggregate 
outstanding mortgage balance is approximately $1.5 billion. Of the 36% of the 
portfolio (by outstanding loan balance) that does not include insured mortgages,
approximately three quarters of the developments receive federal subsidy 
payments or commonwealth subsidy payments. On a portfolio basis, approximately 
ten percent of the loans are uninsured or unsubsidized. 

The most recent consolidated cash flow statement, which reflects transactions 
through the 2012 series E&F bonds, demonstrates that the program's asset parity 
position, in various interest-rate and bank bond stress scenarios, is projected 
to stay above 112%. This projected asset parity position is well above the 101% 
required by the general resolution and reflects an overcollateralization level 
sufficient to support the rating based on the composition of the portfolio. 
Approximately 7% of the bonds under the general resolution are in the 
variable-rate mode with 95% of the bonds swapped to a synthetic fixed rate. 

The portfolio has performed very well since inception and represents some of 
MassHousing's best performing loans. Currently, MassHousing reports that only 
one loan representing less than 1% of the loan portfolio was delinquent in the 
last year. The loan portfolio is geographically diverse. The largest geographic 
concentration is in and around Boston, with approximately 15% of the outstanding
loan balance located in the city proper. The 10 largest properties represent 
about 14% of the portfolio balance. 

The general resolution permits various types of loan financings, including both 
new and existing single-family and multifamily mortgages. The potential for 
unexpected changes in the portfolio's loan composition is mitigated by the 
agency's ongoing disclosure for the portfolio, which Fitch will continue to 
monitor.
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