Fitch Rates Massachusetts HFA $466.6MM Housing Bonds 2003 A-E 'AA-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 9, 2003

Fitch Ratings assigns a rating of 'AA-' to Massachusetts Housing Finance Agency's (Mass Housing) $466.6 million housing bonds, 2003 series A-E. The series A and B bonds, dated the date of delivery, are expected to be delivered next month. The series C-E bonds, also dated the date of delivery, are scheduled to be delivered in September. The series A-D bonds will be sold next week while the series E bonds will be sold next month, all through negotiation by a UBS Paine Webber Inc.-led syndicate.

These are the first bonds to be sold under a flexible general bond resolution adopted Dec. 10, 2002. As a part of the overall financing plan, Mass Housing is also expected to sell approximately $530 million of variable-rate bonds later this month to be delivered next month with the series A and B bonds. The variable-rate bonds have not yet been rated. Bond proceeds from both sales will be used to defease and redeem at the redemption premiums bonds issued previously under three separate resolutions. Following redemption of such prior bonds, mortgage loans on 289 existing residential developments pledged to the prior bonds will be transferred to this resolution as security for these bonds.

The long term 'AA-' rating reflects the sound credit quality of the current loan portfolio, the projected overcollateralization (OC) of bonds as well as cash flow surpluses sufficient to offset potential cash flow interruptions from future loan payment delinquencies, adequate legal provisions of the resolution, and Mass Housing's strong programmatic oversight capabilities. Overall, the portfolio has performed favorably. Credit concerns center on the annual appropriation risk associated with the commonwealth of Massachusetts' (the commonwealth) 13A subsidy program, the ability of Mass Housing to transfer surplus funds out of the resolution if minimal asset parity requirements are met, and risks associated with cyclical economic pressure on the regional housing market.

The portfolio will consist of 289 residential developments which had an aggregate outstanding mortgage balance of $997.7 million as of Sept. 30, 2002. Most of the properties were initially financed from the 1970s to mid 1980s and are located throughout the commonwealth. The developments contain nearly 38,000 rental units. The vast majority of dwellings receive federal or commonwealth subsidy payments - nearly one-half (47%) of the units receive rental assistance payments under Section 8 of the United States Housing Act of 1937, 28% receive interest rate subsidies under Section 236 of the National Housing Act, and 17% receive interest rate subsidies under 13A of the commonwealth statutes. The remaining 8% of units do not receive rental or interest rate subsidies. Section 236 and 13A subsidy payments are made directly to Mass Housing on a monthly basis. A portion of the units in 13A developments also receive subsidies under the commonwealth's rental subsidy program. Included in the portfolio is a $115.8 million mortgage financed in the early 1990s that is secured by a Ginnie Mae pass-through certificate under which timely payment of principal and interest is guaranteed.

The portfolio has performed very well since inception and represents some of Mass Housing's best performing loans. None of the 289 developments were experiencing mortgage payment, escrow, or replacement reserve delinquencies as of Dec. 31, 2002. The strong performance reflects the availability of subsidies on the majority of units as well as Mass Housing's strong programmatic oversight and early intervention with potential troubled loans.

The program's asset parity position is projected to be approximately 102% at initial funding, declining to 101.8% following delivery of the series C-E bonds. This projected asset parity position is somewhat above the 101% required by the general resolution and reflects the minimum level of OC, based on the current composition of the portfolio, necessary to support the 'AA-' rating.

The nature of the portfolio has the potential to change significantly as new loans are added to the program - the general resolution permits various types of loan financings, including both new and existing single-family and multifamily mortgages. Fitch's ongoing credit analysis will be driven by the program's actual asset parity position, portfolio composition and performance, program financial results, and cash flow strength.