Fitch Affirms SONYMA MIF Project Act at 'AA-' and SF Act at 'AA+'.

NEW YORK -- Fitch Ratings affirms the insurer financial strength rating of the State of New York Mortgage Agency's (SONYMA) mortgage insurance fund's (MIF) project pool insurance account (project account) at 'AA-' and the single-family pool insurance account (single-family account) at 'AA+'. The affirmation follows a final excess balance determination due by May each year that concluded there was $50 million in excess funds to be transferred from the MIF to the state for the period ended March 31, 2005. The affirmation also follows the creation of a new MIF account, the development corporation credit support (DCCS) account, funded with $33.8 million from the special account as of March 31, 2005. The affirmation reflects the project's and single-family account's strong risk-to-capital ratios, high asset quality and liquidity of reserve fund investments, and substantial financial support from the state's mortgage recording tax surcharge receipts.

The MIF was created by the state in 1978 as a separate operating unit of SONYMA. Through the project account, the MIF insures first mortgages on multifamily housing, elderly housing, special needs facilities (SNFs), and, to a lesser extent, on elderly assisted-living residences, cooperative housing, and retail and community service projects. Single-family mortgage pool insurance for some of SONYMA's single-family bond issues, as well as some primary insurance, is written through the single-family account. By statute, each insurance account's reserve fund is required to be maintained separately at a minimum of 20% of the account's risk in force and commitments outstanding plus up to 100% of the insured liability for all policies that are potential claims. Effective in May 2001, the MIF's board further stipulated that all SNFs' reserves equal a minimum of 40% of the risk amount. Reserve funds are invested in short- to medium-term U.S. government and agency securities.

The project and single-family accounts' current risk-to-capital ratios are 2.3 times (x) and 2.7x, respectively. Actual insured risk-to-total available reserves historically has remained well below five-to-one in both insurance accounts as a result of the significant portion of outstanding commitments relative to each account's risk in force, as well as the ability to fully reserve against potential claims and accumulate some excess reserves. The MIF derives revenues from investment earnings, fees, and premiums, as well as from the state mortgage recording tax surcharge. Surcharge receipts available to the fund, which totaled $137 million during the year ended March 31, 2005, are deposited to the fund's special account and credited on parity to the insurance accounts to satisfy reserve requirements for claim liabilities and to the DCCS account to fulfill the minimum reserve requirement. Revenues, including surtax receipts for new claims and new policies and other earnings, in excess of the project and single-family account's requirement for reserves, can be retained in the respective account as retained earnings. Periodic proposals to redirect all or a portion of the MIF's share of surtax receipts are an ongoing concern.

On Dec. 7, 2004, a bill was passed by the New York State Legislature that authorized the MIF to create a fourth account, the DCCS account, funded up to a maximum reserve amount of $50 million annually, as a source of credit support for any bonds or ancillary bonds of the Convention Center Development Corporation (CCDC). The CCDC is a subsidiary of the New York State Urban Development Corporation established for the purposes of financing the expansion and renovation of the Jacob Javits convention center. The primary source of revenues for the bonds is a Convention Center Hotel Unit Fee of $1.50/key/night tax in New York City.

As of Nov. 16, 2005, SONYMA has entered into a Credit Support Agreement with CCDC and set aside $34 million of mortgage recording tax surcharge receipts as reserves in the MIF's DCCS account. The MIF is required to maintain a minimum of $25 million on deposit at all times in the DCCS account. This reserve amount can be used as a source of payment, only if the bond reserve fund and hotel tax moneys are insufficient, for up to one third of the scheduled debt service on the bonds, an amount which is estimated to range between $12 million and $20 million. If the DDSC falls below the $25 million, the MIF's obligation to replenish it is on parity with the funding of reserves for claims on policies in the project and single-family accounts, taking priority over the issuance of new commitments or policies in those accounts.

As of March 31, 2005, the project account had $1.27 billion of risk covering 585 policies in force and an additional $398 million in commitments. Reserves assigned to this account totaled $716 million, which equals a risk-to-capital ratio of 2.3x when including all reserves and 3.5x excluding retained earnings. In addition to the low risk level relative to reserves, claims paid to date are moderate while delinquent loans are minor. The MIF has paid 38 final claims aggregating $86 million since the account's inception, only 7% of the account's current risk amount. Approximately one half of this claim amount covered one claim payment made in July 2003 for an SNF that had been fully reserved against prior to payment. Furthermore, the fund has paid less than $1 million on four pending claims. Concerns continue to focus on the account's single-risk exposure to several large geriatric and acquired immune deficiency syndrome facilities, which, in turn, rely heavily on state Medicaid reimbursement payments; the portfolio's significant geographic concentration in New York City; and the account's broad legislatively defined public policy role.

The single-family account had $437 million of risk in force as of March 31, 2005. The account consists of 34 pool insurance policies covering 31,535 loans, with an aggregate outstanding mortgage amount of approximately $2.4 billion. The aggregate stop-loss limit on these loans equals $359 million. The account also provides primary mortgage insurance to approximately 3,564 loans with an outstanding balance of $309 million and a risk amount of $78 million. Additionally, the account has reserves set aside for $2 million in primary insurance commitments. Account reserves equaled $162 million as of March 31, 2005, generating a risk-to-capital ratio of 2.7x. Excluding retained earnings, the risk-to-capital ratio equaled 4.3x. Both the pool and primary insurance portfolios are performing well, and total claims paid to date ($21 million, or 5% of the account's risk amount) have been fairly minor. Concerns include the geographic concentration of the portfolio and limited business scope of the account.

Fitch expects to issue a full rating report on the SONYMA MIF within the next several days.

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