Moody's lifts outlook on U.S. state housing finance to stable
Oct 8 (Reuters) - Moody's Investors Service revised its outlook on the $100 billion U.S. state housing finance agency sector to stable from negative on Tuesday after the agencies diversified their business models to cope with loan financing challenges.
The agencies have added new strategies to finance loans, used alternative bond structures to cut borrowing costs and begun lending to new customer bases, for both single family and multifamily programs, Moody's said.
HFAs are state-chartered authorities that administer affordable housing and development programs.
"We expect these changes to stabilize the HFAs, as they now have the capability to finance loans in a variety of mortgage and interest rate environments," Moody's senior analyst Rachael McDonald said in a report.
HFA balance sheets were stable between 2008 and 2010 and grew in 2011 and 2012. Moody's expects them to continue growing through the next 18 months, according to the report.
The agencies are strong enough to absorb delinquencies and foreclosures, which have been high and could rise even higher in the near term.
That will add pressure, but "loan loss stress tests show that HFAs can absorb probability of default rates and price declines that are significantly higher than the current levels they are experiencing," Moody's said.
In late 2008, HFAs started having trouble with tax-exempt mortgage revenue bonds, their traditional model for financing loans. That was because yields on the bonds were not low enough to let the agencies offer loans at competitive rates to first-time home buyers, Moody's said.
Then in 2009, the U.S. Treasury unveiled a bond-buying liquidity program, which allowed HFAs to remain competitive by issuing bonds at below-market rates, Moody's said.
The agencies have also been using alternative bond structures to replace expiring variable-rate demand bonds. The new structures include floating-rate notes, direct bank purchases and index floaters, Moody's said.
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