Fitch Rates Alaska HFC $98.7MM Home Mtge Revs 2006 A 'AA+'.

NEW YORK -- Fitch Ratings assigns a rating of 'AA+' to Alaska Housing Finance Corp.'s (AHFC) $98.7 million home mortgage revenue bonds, 2006 series A. The bonds are expected to be insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch. The bonds are expected to be sold during the week of Jan. 9, 2006, as a negotiated transaction by Merrill Lynch & Co. Additionally, the 'AA+/F1+' rating on the outstanding $194.3 million 2002 series A and B bonds is affirmed.

The current offering is the third series sale of bonds issued under a master trust indenture dated May 1, 2002, which pledges mortgage revenues, investment earnings, reserves, and other funds to the bonds. The bonds are general obligations of the corporation, rated 'AA+' by Fitch. The bonds' 'AA+' rating also 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. 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.

Bond proceeds will be used to purchase qualified mortgage loans already originated under this program (approximately $86.3 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), 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 be in the form of MBS and/or qualified mortgage loans.

Of the warehoused loans, approximately 44% of the loan balance is covered by FHA insurance, 21% is covered by VA guarantees, 9% carries private mortgage insurance, 8% is RD-guaranteed, and 19% covers loans with LTV's of less than 80% and are therefore not required to have insurance or guarantees. Almost two-thirds (62%) of the mortgages (based on loan balance) are for detached homes, while one-third are condominiums and 2% are either two- to four-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, 2005 indicated continued strong financial position, despite a slight decrease in earnings and 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 with the Fitch adjusted debt-to-equity ratio at 1.8 times (x) in fiscal 2005, the same level as fiscal 2004. AHFC's net income before extraordinary items equaled $40.1 million during fiscal year 2005, a slight decrease from $42.5 million the previous fiscal year. Net interest spread rose slightly to 42.3% during fiscal 2005 from 40.2% in fiscal 2004. Net operating margin decreased somewhat to 13.0% in fiscal 2005 from 13.9% during fiscal 2004.

During the three months ended Sept. 30, 2005, the corporation's financial position remained strong.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.