Fitch Rates Alaska Housing Finance Corp.'s $89MM Home Mortgage Revs 2007C 'AA+'.

NEW YORK -- Fitch assigns a rating of 'AA+' to Alaska Housing Finance Corp.'s (AHFC) $89.4 million home mortgage revenue bonds, 2007 series C. The bonds are expected to be sold during the week of Jan. 15, 2007 as a negotiated transaction by Merrill Lynch & Co. Additionally, the 'AA+' rating on the outstanding $429.7 million 2006 series A, B and C and 2002 series A bonds is affirmed.

The current offering is the sixth series of bonds issued under a master trust indenture dated May 1, 2002, that pledges mortgage revenues, investment earnings, reserves and other funds to the bonds. The bonds are general obligations (rated 'AA+') of the corporation. 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 loan portfolio and vulnerability of the state's real estate market to the limited, oil-dependent economy.

Bond proceeds will be used to purchase new qualified mortgage loans under this program. 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 insured by 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. The aggregate LLF, equal to 6% of the total bonds outstanding to maintain the underlying rating on the bonds, must initially 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.

Approximately 44% of the aggregate loan balances are covered by FHA insurance, 22% is covered by VA guarantees, 10% carry private mortgage insurance, 8% are RD-guaranteed, and 16% cover 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 5% 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, 2006 indicate a continued strong financial position and an increase in earnings. Transfers to the state over the previous five fiscal years total more than $400 million. AHFC's leverage ratios are among the lowest of all housing finance agencies with the Fitch adjusted debt-to-equity ratio at 1.6 times (x) in fiscal 2006, compared to 1.8x in fiscal 2005. AHFC's net income before extraordinary items equaled $46.7 million during fiscal year 2006, increasing from $40.1 million in fiscal 2005. Net interest spread was flat at 42.1% in fiscal 2006 compared to 42.3% during fiscal 2005. Net operating margin increased somewhat to 14.6% in fiscal 2006 from 13.0% during fiscal 2005.

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