Fitch Rates Maryland CDA $109.9MM Residential Revenue Bonds 'AA/F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 6, 2002

Fitch Ratings assigns a rating of 'AA/F1+' to Maryland Community Development Administration's (CDA) $109.9 million residential revenue bonds, 2002 series D and E. Additionally, Fitch affirms the 'AA' rating on the $886.1 million outstanding residential revenue bonds and the 'AA/F1+' rating on the $97.3 million outstanding residential revenue bonds, 2002 series B and C. The bonds, scheduled to close Dec. 18, 2002, have a final maturity of Dec. 18, 2003 and are subject to redemption at the option of the Administration beginning July 1, 2003. Interest is payable on July 1, 2003 and at maturity or earlier redemption. The bonds are expected to sell during the week of Dec. 9, 2002 through negotiation by a Bear Stearns and Co. Inc.-led syndicate. CDA is a division of the state's Department of Housing and Community Development (DHCD).

The bonds are on parity with all outstanding residential revenue bonds. Proceeds from the 2002 series D and E bonds are expected to be invested in U.S. government or agency obligations in an amount and maturity approximately matching those of the bonds. The amounts invested will be available to pay the purchase price and the accrued interest upon redemption. The long-term rating reflects the security of the residential revenue bond program, while the short-term rating reflects the sufficiency of available funds to pay interest and principal when due. The program's 'AA' long-term rating is based on the current portfolio composition, the inclusion of only fully insured or guaranteed loans, and adequate reserve levels and liquidity, as well as the administration's successful management track record and established program oversight abilities.

The bonds are being issued to refund certain outstanding mortgage revenue bonds under this program as well as under CDA's 1980 single-family program. Bond proceeds ultimately are expected to continue CDA's first time homebuyer program when the notes are refunded and replaced by long-term bonds. However, if the notes are not refunded, the proceeds from the 2002 series D and E bonds will be used to pay such bonds at maturity.

Under its first time homebuyer program, CDA purchases single family mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture through its Rural Development Guaranteed Rural Housing Loan Program (RD). As of Sept. 30, 2002, there were 8,380 loans outstanding under this program (including 1,473 participation loans funded from a combination of this and the 1980 bond programs) with an aggregate principal balance of $736.7 million. By comparison, CDA had purchased 7,132 loans aggregating $632 million as of Sept. 30, 2001. The vast majority of loans are insured by FHA (94%), while the remaining loans are guaranteed by VA (3%) and RD (3%).

The residential revenue bond program's financial position is satisfactory given the program's short-term history. Equity increased to $35.1 million as of June 30, 2002, a minor increase over the previous year. Likewise, the program's debt-to-equity ratio remained relatively unchanged from fiscal 2001 as the program's equity kept pace with the small increase in bonds outstanding during 2002. However, the debt-to-equity ratio remains high relative to other states' single family mortgage revenue bond programs.

Program financial results for fiscal year 2002 declined significantly from fiscal 2001, reflecting the declining interest rate environment. Net operating income before transfers declined to $2.7 million in 2002 from $8.2 million during 2001 as net interest earnings fell to $5.0 million from $9.5 million the previous year. Accordingly, net interest spread (net interest income divided by total interest income) fell sharply to 8.8% in fiscal year 2002 compared with approximately 18% during the previous three fiscal years. Financial statements for the three months ended Sept. 30, 2002 show a small positive net operating income.

Serious delinquencies in the program are moderate - 4.3% were 60 or more days delinquent or in foreclosure as of Sept. 30, 2002, an increase from 3.9% the previous quarter. By comparison, 6.7% of fixed-rate FHA loans in the state were 60 or more days delinquent as of June 30, 2002, the latest period for which statistics are available. Serious delinquencies for fixed rate FHA loans throughout the state have increased considerably since 1998.

For additional information regarding this issuer, please see Fitch's research report on Maryland Community Development Administration dated Jan. 25, 2002 available on Fitch's web site at 'www.fitchratings.com'.