Fitch Affirms Florida HFC's Affordable Housing Guarantee Fund at 'A'.

NEW YORK -- Fitch Ratings affirms Florida Housing Finance Corporation's (FHFC) affordable housing guarantee fund's (the guarantee fund) insurer financial strength rating at 'A'.

FHFC administers the Florida Affordable Housing Guarantee Program and supports it from the net assets of the guarantee fund. The fund's 'A' rating reflects the low current risk-to-capital ratio, adequate board-determined reserve requirement, high asset quality and liquidity of guarantee fund investments, as well as the fund's ability to draw on future documentary stamp taxes deposited monthly to the State Housing Trust Fund (SHTF). The SHTF, scheduled to sunset last year, was reenacted for another four years as of June 10, 2004.

Notable risks include:

-- Pledge of the SHTF to replenish guarantee fund corpus is subordinate to replenishment of the DSRF (debt service reserve fund) for capitalization bonds;

-- The SHTF's share of stamp tax allocations is subject to future legislative modification;

-- The program's limited profitability relative to outstanding guarantees is due, in part, to its highly leveraged capital base;

-- The multifamily portfolio's construction risk and developer and geographic concentration;

-- Management's potential need to oversee claim payments if the portfolio experiences significant and simultaneous claim requests.

As of July 31, 2005, the corpus of the guarantee fund totaled $304 million, derived from the following: $257 million net proceeds from FHFC's issuance of $300 million in capitalization bonds, net investment and program earnings after payment of capitalization bond debt service, and transfers from the SHTF. The corpus is invested in investment agreements with variable maturities from high-quality providers as well as in U.S. treasury notes. Although not mandated by statute, the board has established a 20% reserve requirement for all outstanding guarantees; as such, the fund's capacity currently totals $1.5 billion of risk in force. As of July 31, 2005, the fund had 114 guarantees outstanding with obligations totaling $904 million. The fund's resulting risk-to-capital ratio equals 3:1.

Over the 12-month period from July 31, 2004 to July 31, 2005, the fund added new loan guarantees on only one multifamily property, which is covered by HUD's risk-sharing program, and two existing projects were refunded and removed from the portfolio. A significantly smaller percentage of projects were undergoing construction (5%) as of July 31, 2005 than as of July, 31 2004 (22%) and approximately the same percentage of projects participate in HUD's risk-sharing program. As a result of the addition of only one guarantee, the portfolio composition did not change significantly over the past year. In 2004 and 2005, several hurricanes caused damage to properties in certain areas in the state of Florida. None of the existing guarantee fund properties sustained major structural damage during these storms. There was, however, one project under construction that incurred enough damage to cause a several-month delay in the project's completion.

Accordingly, Fitch will continue to monitor the credit implications, if any, that storm damage may have on the guarantee fund portfolio.

The guarantee fund benefits from ongoing state support through legislation that allows for replenishment of its reserves by drawing on a portion of future documentary stamp taxes allocated to the SHTF to maintain the insurer financial strength rating of the fund at the third highest rating category. Transfers from the trust fund to the program for purposes of replenishing the corpus may not exceed 50% of the SHTF's prior year allocation, which totaled $143 million in the fiscal year ended June 30, 2005, and are subordinate to the program's requirement to restore the DSRF securing the capitalization bonds. On May 26, 2005, this legislation was modified to set future appropriations to the SHTF, beginning on July 1, 2007, at a fixed amount, with a provision for increases, as of July 1, 2008, of 10% of the increase in future taxes collected. The new legislation, however, also requires that such allocation amount will be: sufficient to cover DSRF and program transfers to the guarantee fund pursuant to the aforementioned legislation, and up to but not exceeding the transfer amount available based on the percentage distribution to the SHTF that was in effect during fiscal 2004-2005. Even with the new legislation in place, there is the remote risk of a future proposal to redirect the SHTF's share of stamp tax allocations.

The guaranteed portfolio consists of 107 permanent and construction loan guarantees on individual multifamily properties aggregating $895 million of risk in force, four single-family primary reinsurance arrangements aggregating $9.3 million of risk in force, and one guarantee for a single-family second-mortgage pool totaling $27,529. One-half of the guaranteed multifamily loans (56 properties), have been underwritten and financed by FHFC with bond financing in conjunction with HUD's risk-sharing program. An additional 16 properties have been underwritten and financed by local housing finance agencies as part of HUD's risk-sharing program. The fund provides guarantees on properties prior to construction; currently about 5% of the total coverage amount is for developments undergoing construction. Furthermore, the loans are highly concentrated among developers and within the geographic regions of southeastern and central Florida. As of July 31, 2005, the average occupancy rate for completed projects in the portfolio is 95.5%, an increase from July 31, 2004, when the rate was 92.2%. Although no claims have been filed for the multifamily developments, the fund has paid $52,871 in claims on its single-family guarantees.

Fitch expects to issue a full rating report on the Florida Affordable Housing Guarantee Program within the next week.

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