Fitch Rates Florida HFC's $100MM Mortgage Revenue Bonds 'AA+'.
The current offering is the 37th sale of bonds issued under a flexible master trust indenture adopted by FHFC in 1995. The net proceeds from the 2008 series 3 bonds will be used to continue FHFC's single-family first-time homebuyer program by purchasing Ginnie Mae, Freddie Mac, and Fannie Mae mortgage-backed securities (MBS). The long-term rating reflects: the current portfolio, which, as of June 30, 2008, consisted of approximately 89% MBS and 11% single-family whole loan mortgages; the expected purchase of additional MBS; strong asset-to-debt ratio indicating sufficient program reserves and liquidity levels; deep levels of mortgage insurance available to protect against potential losses on the decreasing portion of whole loans; and management's capable program oversight abilities. The current direction of the program with the additional purchase of MBS is seen as a positive credit factor. Ginnie Mae certificates are guaranteed by the U.S. government. Fitch's 'AAA' ratings (affirmed on Sept. 2, 2008) of Fannie Mae's and Freddie Mac's long-term Issuer Default Rating (IDR) and senior debt rating reflect the high probability of external support becoming available and the companies' importance to the U.S. housing market. The potential for explicit support has been recently expressed by the U.S. Treasury through its plan to maintain the confidence and stability of the financial markets and, in particular the liquidity of Government Sponsored Enterprise (GSE) debt. For more information on the IDR rating of Fannie Mae and Freddie Mac, see Fitch press releases dated Sept. 2, 2008 and July 17, 2008.
Credit concerns center on FHFC's flexibility to originate whole loans under the indenture as well as on the potential for losses from the remaining whole loan portfolio. However, mitigating this concern, no new whole loans have been originated in the program since prior to 2002 and the existing whole loan portfolio is primarily insured or guaranteed and becoming a smaller percentage of the overall indenture. FHFC maintains the ability to remove funds from the program if the asset parity requirement of 102% is met.
The master trust indenture adopted by FHFC in 1995 establishes the bonds' security lien, new issuance requirements, flow of funds, and minimal loan requirements. Specific program restrictions are incorporated into supplemental indentures at the time of each bond sale. As of June 30, 2008, $160 million in whole loans and $1.5 billion in MBS were outstanding, compared with $177 million and $891 million, respectively, as of July 31, 2007, reflecting the growing percentage of MBS in the portfolio. Approximately one-half (47%) of the outstanding whole loan balance by loan amount (which excludes MBS) is Federal Housing Administration (FHA)-insured, 20% is privately insured, 11% is guaranteed by the U.S. Department of Veterans Affairs (VA), 6% is guaranteed by the U.S. Department of Agriculture, through its Rural Housing Service's (RHS) Guaranteed Loan program, and the remaining 15% is uninsured.
In addition to the primary mortgage insurance from various providers, almost all whole loans are covered by mortgage pool insurance under separate policies with varying levels of coverage and constraints. Delinquencies in the existing whole loan portfolio were down slightly from the prior quarter. As of June 30, 2008, 5.75% of the whole loans in the homeowner mortgage revenue bond program were 60 days or more delinquent or in foreclosure, less than recent delinquencies of 8.2% for fixed-rate FHA loans in the state (as of March 31, 2008), and a decrease from the April 30, 2008 level of 6.3%.
All prior bonds that were used to purchase whole loans required, by each series-specific supplemental indenture, the funding of a mortgage reserve (2%) and debt service reserve (3%) fund. The 2008 series 3 bonds do not require funding either reserve fund due to the full and timely guarantee of Ginnie Mae, Freddie Mac and Fannie Mae securities. Reserves for several bond series have been funded in the form of non-callable surety bonds provided by the respective bond insurer. As of June 30, 2008, the balances in the mortgage and debt service reserve funds were $3.1 million and $4.1 million, respectively, including the stated amounts of surety policies.
The most recent consolidated cash flow demonstrates that the program's asset-to-debt parity ratio is maintained above approximately 104.72%. Under certain prepayment and loan origination stress scenarios, as well as a scenario where interest income generated by a GIC with a downgraded provider were stressed, the cash flows exhibit a decline in the parity ratio to 104.67% in the near term, but then increase from that point forward.