Fitch Rates Massachusetts HFA $55.4MM Housing Bonds 2006 A, B & C 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to Massachusetts Housing Finance Agency's (Mass Housing) $55.4 million housing bonds, 2006 series A, B and C. The 2006 series A, B and C bonds are expected to sell this week through a syndicate led by Lehman Brothers and are expected to close on or about May 11, 2006. Fitch also affirms the 'AA-' rating on all series of the outstanding $1.419 billion of housing bonds as of Jan. 31, 2006, prior to consideration of any bond insurance.

The bonds are the 16th issuance under a general resolution adopted by Mass Housing on Dec. 10, 2002. Bond proceeds will be used to fund seven permanent mortgages on rental developments, six of which are expected to be insured by the Federal Housing Administration (FHA) through a risk sharing agreement between the U.S. Department of Housing and Urban Development (HUD) and Mass Housing, as the mortgage lender. Under the risk sharing program, HUD pays a claim in an amount equaling the unpaid balance of the mortgage notes, plus interest from the date of default to the date of claim payment. Mass Housing will redeem bonds within 30 days of receipt of a claim payment.

Bond proceeds will also be used to fund a debt service reserve fund in an amount equaling six months of debt service on the bonds as well as for costs of issuance.

The bonds' 'AA-' rating reflects the sound credit quality of the loan portfolio and the projected overcollateralization (OC) of the 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 risks associated with cyclical economic pressure on the regional housing market and the ability of Mass Housing to transfer surplus funds out of the resolution if minimal asset parity requirements are met. Annual appropriation risk associated with the Commonwealth of Massachusetts' 13A subsidy program also exists, but has diminished as the contractual obligation amount has declined significantly over the past several fiscal years. For fiscal 2006, the commonwealth budget provided for funding of $5.5 million of the $8 million of the subsidy requested for the portfolio.

The existing multifamily portfolio, excluding loans on the developments to be added to the resolution in conjunction with this financing, as well as loans that have been committed but not yet closed, consists of 334 mostly seasoned residential developments with approximately 43,000 dwelling units. During fiscal 2006, Mass Housing purchased $41 million of single-family loans into the housing bond resolution. The single-family loans represent 3% of the total outstanding portfolio.

The multifamily portfolio has an aggregate outstanding mortgage balance of $1.218 billion as of Dec. 31, 2005. Of the two-thirds of the portfolio (by outstanding loan balance) that do not contain insured or guaranteed developments, approximately 72% receive federal subsidy payments and 21% receive commonwealth subsidy payments. Of the remaining one-third of the portfolio, 36 of the properties are insured under the FHA risk-sharing program, six are insured by FHA, one is secured by a Ginnie Mae pass-through certificate, and one is secured by a Fannie Mae pass-through certificate. The portfolio has performed very well since inception and represents some of Mass Housing's best performing loans. As of Dec. 31, 2005, there are two developments (with outstanding loan balance representing less than 1% of the portfolio) that are experiencing mortgage payment, escrow or replacement reserve delinquencies.

The most recent consolidated cash flow statement, which reflects transactions through the 2006 series A, B and C bonds, shows that the resolution's asset parity position is projected to be over 108% as of Dec. 1, 2006. This projected asset parity position is well above the 101% required by the general resolution and reflects an OC level sufficient to support the 'AA-' rating based on the composition of the portfolio.

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 resolution's actual asset parity position, portfolio composition and performance, financial results, and cash-flow strength.

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