Fitch Releases Report on SHFAs: Stability Ensues After 2 Years of Shrinking Portfolios.

NEW YORK -- Fitch updates its state housing finance agencies (SHFAs) statistical information report to include fiscal year 2005 financial results for 30 SHFAs. The 30 SHFAs demonstrated a slight increase in aggregate-total assets and total debt from fiscal 2004 to fiscal 2005, reversing a two-year trend in declining aggregate-total assets and total debt. Total assets of the 30 SHFAs increased 2% from fiscal 2004 and total debt increased less than 1%. Although only 60% of the fiscal 2005 results have been reported, Fitch expects aggregate-total assets and total debt for all 50 SHFAs to be slightly higher than 2004 results.

Charles Giordano, Director of the Housing Group at Fitch, noted, 'Going forward, as long as long-term conventional interest rates continue to rise, the mortgage rates offered by SHFAs should become more competitive. The agencies will still face competition from the sub-prime market but should begin to see a gradual increase in demand for their products.'

The past two fiscal years have seen a rapid increase in SHFA issuance of variable-rate debt as a way for the agencies to meet investor preferences and offer more competitive mortgage rates. From fiscal 2000 to fiscal 2004, the amount of variable-rate debt outstanding as a percentage of total debt increased from 8% to 31%. For the 27 agencies that reported variable-rate debt usage in fiscal 2005, the issuance as a percentage of total debt remained constant from fiscal 2004 to fiscal 2005. Of the total amount of fiscal 2005 variable-rate debt reported, approximately 64% was hedged with interest rate swap or interest rate cap contracts, compared with 72% in fiscal 2004 for those same 27 SHFAs.

Giordano added, 'We expect the SHFAs to continue issuing variable-rate debt at relatively similar levels given the overall shift in investor preference away from long-term fixed-rate housing bonds to shorter-dated securities.'

Over the past two fiscal years, the SHFAs managed their loan portfolios through a high prepayment period by recycling loans and calling bonds, and as prepayments have slowed, the SHFAs have continued to improve capital base positions and begun to reverse the two-year trend of declining profitability. When comparing the 2005 SHFAs' results to the prior fiscal year, the median debt-to-equity ratio improved for the sixth year in a row from 5.6 times (x) in fiscal 2004 to 5.3x in fiscal 2005, now at the lowest ratio since Fitch started reporting the combined statistical results of the SHFAs.

A comparison of fiscal 2004 to fiscal 2005 median net interest spread percentages showed 70% of the agencies reporting an increase. The median net interest spread, based on the 30 agencies reporting, increased from 20.4% in fiscal 2004 to 25.4% in fiscal 2005. SHFAs saw a slight increase in median net operating revenues (without including the GASB 31 adjustment) from 8.2 million in fiscal 2004 to 8.4 million in fiscal 2005. Fitch expects a similar trend in profitability for the fiscal 2005 results of the remaining 20 agencies.

For a copy of the Fitch report, 'State Housing Finance Agencies: Statistical Information' dated January 2006, visit the Fitch Ratings web site at www.fitchratings.com or contact the Ratings Desk at [phone].

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