Fitch Rates Alaska HFC $200MM Home Mtge Revs 2002 A-B 'AA+/F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 10, 2002

Fitch Ratings assigns an underlying rating of 'AA+' to Alaska Housing Finance Corp.'s (AHFC) $200 million home mortgage revenue bonds, 2002 series A and B. The bonds are expected to be insured by Financial Security Assurance Inc., whose insurer financial strength is rated 'AAA' by Fitch. The bonds will be sold as variable-rate tender option bonds and are assigned a short-term rating of 'F1+'. The short-term rating reflects the credit quality of the initial liquidity support for the bonds' tender features. The bonds are expected to be sold during the week of May 13 as a negotiated transaction by Lehman Brothers.

The current offering is the first sale of bonds issued under a new master trust indenture and a supplemental indenture each dated May 1, 2002 that pledge mortgage revenues, investment earnings, reserves and other funds to the bonds. The bonds' underlying 'AA+' rating reflects the amounts on deposit in funds and accounts including a loan loss fund held under the indenture, the strong credit quality of the expected underlying collateral and related credit enhancements, the adequacy of projected pledged revenues to pay debt service, and strong management capabilities and financial strength of AHFC. The bonds are also general obligations of the corporation. Credit concerns include the geographic concentration of the warehoused loan portfolio and vulnerability of the state's real estate market to the limited, oil-dependent economy.

The bonds are being sold as variable-rate tender option bonds and initially will bear interest at a weekly rate. The short-term 'F1+' rating assigned to the bonds reflects the availability of a standby bond purchase agreement provided by Dexia Credit Local, rated 'AA+/F1+' by Fitch. Lehman Brothers Derivative Products Inc. (LBDP) will provide interest rate swaps on the 2002 series A ($170 million tax exempt) bonds; there are no swap agreements on the 2002 series B ($30 million taxable) bonds.

Bond proceeds will be used to purchase qualified mortgage loans already originated under this program (approximately $117 million) and finance new qualified loans. All loans purchased with tax exempt bonds will be qualified first-time homebuyer loans. The master indenture authorizes the purchase of insured or guaranteed (if necessary, see below) mortgages and mortgage-backed securities (MBS); other loan types are also allowed provided the bonds' rating is maintained. Each loan is required to be a first lien mortgage on a single-family residence within the state, bear a fixed rate of interest, and have a term of 15 to 30 years. Additionally, loans with original loan-to-value ratios (LTVs) of 80% or higher at origination are required to be insured by the Federal Housing Administration (FHA), guaranteed by the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture through its Rural Development program (RD), or private mortgage insurers (PMI).

The master indenture requires a debt service reserve account (DSRA) and loan loss fund (LLF) be funded at each bond issuance. The DSRA and LLF provide an important layer of credit support, mitigating concerns of potential cash flow disruptions and/or mortgage losses due to future delinquencies and foreclosures. The DSRA requirement is equal to a minimum of: 2% of mortgage loans outstanding (excluding loans covered by pool insurance or underlying mortgage certificates) plus bond proceeds available to purchase mortgage loans; or the amount required in a supplemental indenture. The LLF, equal to the amount required to maintain the underlying rating on the bonds, initially must be in the form of cash and investments and, after the program reaches 103% parity, may also be in the form of MBS and/or qualified mortgage loans.

The 2002 bonds will also have a special reserve account (SRA) initially funded at 3% of bond proceeds. The account is available to pay debt service on any bonds if pledged funds and the DSRA are insufficient. AHFC is expected to contribute amounts to fund the DSRA, LLF, SRA, and costs of issuance for these bonds eliminating all non-asset bonds.

Of the warehoused loans, more than one-half (56%) of the loan balance is covered by FHA insurance, 16% is covered by VA guarantees, 10% carries private mortgage insurance, 7% is RHS-guaranteed, and 11% covers loans with LTV's of less than 80%, and are therefore not required to have insurance or guarantees. More than one-half (58%) of the mortgages (based on loan balance) are for detached homes, while one-third are condominiums and 8% are either 2-4 family homes or planned unit developments. Nearly two-thirds of the mortgages are located in Anchorage.

AHFC's consolidated financial results for the fiscal year ended June 30, 2001 indicated continued strong financial position and an increase in earnings despite combined capital transfers to and debt service payments on behalf of the state totaling more than $400 million during the previous five fiscal years. AHFC's leverage ratios are among the lowest of all housing finance agencies and remained at 1.7 times (x) in fiscal 2001, the same level as fiscal 2000. AHFC's net income before extraordinary items equaled $96.4 million during fiscal year 2001, a significant increase from $77.6 million the previous fiscal year. Net interest spread rose slightly to 45.5% during fiscal 2001 from 44.8% in fiscal 2000. Likewise, net operating margin increased somewhat to 25.6% in fiscal 2001 from 23.4% during fiscal 2000.

During the six months ended Dec. 31, 2001, the corporation's financial position remained strong, while its financial results were favorable.