Fitch Affirms Florida HFC's Affordable Hsg 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 this year, was reenacted for another four years as of June 10, 2004.

Notable risks include:

--Periodic proposals to redirect the SHTF's share of economically sensitive stamp tax allocations;

--Pledge of SHTF to replenish guarantee fund corpus is subordinate to replenishment of the DSRF for capitalization bonds;

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

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

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

As of July 31, 2004, the corpus of the guarantee fund totaled $295.2 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, 2004, the fund had 115 guarantees outstanding with obligations totaling $995.9 million. The fund's resulting risk-to-capital ratio equals 3.4 to 1.

Over the past 12 months, the fund has added new loan guarantees on seven multifamily properties, all of which are covered by HUD's risk-sharing program. A smaller percentage of projects are currently undergoing construction as of November 2003 and an increasingly larger percentage of projects participate in HUD's risk-sharing program. As a result of this small number of additional guarantees, the portfolio composition did not change significantly over the past year. Recently, Hurricanes Charley, Frances, Ivan and Jeanne, caused a still yet to be determined amount of damage to properties in the state of Florida. According to initial reports from FHFC, none of the existing guarantee fund properties sustained major structural damage. There was, however, one project under construction that incurred enough damage that it could cause a delay in the project's completion. Accordingly, Fitch will continue to monitor the credit implications, if any, that the storm damage may have on the guarantee fund portfolio.

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. 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 is estimated to total $117.3 million in fiscal year-ended June 30, 2004, and is subordinate to the program's requirement to restore the DSRF securing the capitalization bonds. Although an important backup to the fund, documentary stamp tax revenues are projected to decline slightly 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 a proposal to redirect the SHTF's share of stamp tax allocations will be implemented.

The guaranteed portfolio consists of 108 permanent and construction loan guarantees on individual multifamily properties aggregating $986.5 million of risk in force, four single-family primary reinsurance arrangements aggregating $9.4 million of risk in force, and three guarantees for single-family second mortgages totaling $94,440. Close to one-half of the guaranteed multifamily loans (58 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 22% 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, 2004, 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 $106,263 in claims on its single family guarantees.