Fitch Affirms Florida HFC's Affordable Hsg Guarantee Fund At 'A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 17, 2003

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 (the 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).

Notable risks include:

-- Periodic proposals to redirect the SHTF's share of stamp tax

allocations;

-- The fund's subordinate position in drawing on the SHTF to its

pledge to replenish the guarantee fund's capitalization bonds'

debt service reserve fund (DSRF) to its required level;

-- The program's limited profitability relative to outstanding

guarantees due, in part, to its highly leveraged capital base;

-- Management's potential need to oversee claim payments if the

portfolio experiences significant and simultaneous claim

requests; and,

-- The multifamily portfolio's construction risk and developer and

geographic concentration.

As of July 31, 2003, the corpus of the guarantee fund totaled $299.7 million derived from $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 and 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 almost $1.5 billion of risk in force. As of July 31, 2003, the fund had 108 guarantees outstanding with obligations totaling $1.033 billion. The fund's resulting risk-to-capital ratio equals 3.5 to 1.

The guarantee fund benefits from ongoing state support through its ability to replenish 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. Although an important backup to the fund, documentary stamp tax revenues are projected to decline somewhat following several years of growth. The source of the revenues is narrow and economically sensitive. Additionally, the types of taxes levied as well as the portion pledged to the SHTF (currently 4.8475%) are subject to legislative modification, and there is the remote but present risk that one of the periodic proposals to redirect the SHTF's share of stamp tax allocations will be approved.

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 $81.1 million in fiscal year ended June 30, 2003, and is subordinate to the program's requirement to restore the DSRF securing the capitalization bonds issued to fund the corpus to its required level. Up to 100% of the previous year SHTF allocation is available to replenish the DSRF, the requirement for which is presently $39.1 million. Because of its first priority pledge on the SHTF, the size of the DSRF requirement relative to the SHTF indirectly impacts the amount available for transfer to the corpus, thereby reducing the SHTF's credit support to the fund. However, this risk is diminished during the current fiscal year as the DSRF requirement is less than one-half of the total SHTF monies available to the program. The allocation to the SHTF is projected to decline to a level below two times the DSRF requirement during the next couple fiscal years and therefore, the risk will re-emerge.

The guaranteed portfolio consists of 101 permanent and construction loan guarantees on individual multifamily properties aggregating $1.016 billion of risk in force, four single-family primary reinsurance arrangements aggregating $12.2 million of risk in force, and three guarantees for single-family second mortgages totaling $288,162. More than 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. The fund provides guarantees on properties prior to construction; currently about one-third 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. The average occupancy rate for completed projects in the portfolio is 92.2%. Although no claims have been filed for the multifamily developments, the fund has paid $81,372 in claims on its single family guarantees.