NEW YORK, NY - Fitch Ratings has assigned an 'AA-' rating to Massachusetts Housing Finance Agency's (MassHousing) $48.6 million housing bonds, 2008 series B. The 2008 series B bonds are expected to be sold through negotiation this week. The 2008 series B bonds are expected to close on or about Dec. 16, 2008. In addition, Fitch has affirmed the 'AA-' rating on the $1.6 billion of housing bonds outstanding under the parity resolution as of June 30, 2008.
The '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. The 2008 series B bonds are the 22nd issuance under a general resolution adopted by MassHousing on Dec. 10, 2002. The 2008 series B bond proceeds will be used to fund new permanent mortgages for two multifamily properties (Florence Apartments and Forestvale Apartments) and will refinance one property (Sycamore Village Apartments) that is already part of the portfolio. The 2008 series B bonds are subject to redemption at the option of MassHousing on any interest payment date.
Florence Apartments is a 138 unit new construction mixed use property located in Roslindale. Bond proceeds in the amount of $18.2 million will be used to fund a new 40 year loan to the development which is one piece of the overall financing with various sources. Forestvale Apartments is a 108 unit existing family housing development located in Jamaica Plains. Bond proceeds in the amount of $18.9 million will be used to fund a new 40 year loan to the development which is one piece of the overall financing with various sources. Sycamore Village Apartments is currently part of the existing housing bond Section 8 portfolio and was originally financed with a HUD insured mortgage which has now matured. The owner has elected not to extend the project based Section 8 contract but the proposed development plan provides for the developer to own, rehabilitate and operate the property while maintaining its affordability for 161 units for 40 years. Using a portion of the 2008 series B proceeds, MassHousing will make a permanent first mortgage with a 40 year term in the amount of $11.4 million for Sycamore Village Apartments. Mass Housing will also provide a $1 million taxable construction bridge loan for the project as well. All three mortgage loans will be insured under the HUD/HFA Risk Sharing Program at the 50-percent tier.
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. Indeed for fiscal year 2009 the commonwealth completely eliminated the subsidy amount and in 2008, the commonwealth budget provided for funding only $4.5 million of the $7.3 million of the subsidy requested for the portfolio. However, the contractual obligation amount for 13A has declined significantly over the past several fiscal years.
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 remains 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 Dec. 31, 2007, the portfolio consisted of approximately 350 mortgages on residential developments that were previously financed or anticipated to be financed under the resolution. The aggregate outstanding mortgage balance was approximately $1.3 billion, with an additional $148.5 million in loans for which permanent commitments had been issued but the funds had not yet been advanced.
Of the 60% of the portfolio (by outstanding loan balance) that does not contain insured or guaranteed developments; approximately 87% receive federal subsidy payments or receive commonwealth subsidy payments. The remaining 40% of the portfolio included the following insured properties: 59 FHA-insured risk-sharing properties, with an aggregate outstanding balance of $471 million; 12 properties, aggregating $47 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, 2008, there was only one development (of the 350), with a total outstanding loan balance of $1.3 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 B bonds, demonstrates that the program's asset parity position, in different prepayment speed stress scenarios, is projected to stay above 112-percent. This projected asset parity position is well above the 101-percent 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.
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Source: Fitch Ratings