Fitch Rates Idaho Housing & Fin Assoc's $12MM 2010A & $18MM 2009 1-A S-F Bnds; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to Idaho Housing and Finance Association's (the association) single-family (S-F) mortgage bonds, 2010 series A and the 2009 series 1-A as follows:

2010 Series A

--$7.2 million class I fixed-rated bonds 'AAA'

--$2.2 million class II fixed-rate bonds 'AA'

--$2.6 million class III fixed-rate bonds 'A+' (GO pledge)*.

2009 Series 1-A

--$18 million class I fixed-rate bonds 'AAA'.

Additionally, Fitch affirms the following:

--2009 class I fixed-rate bonds 'AAA'

--2009 class II fixed-rate bonds 'AA'

--2009 class III fixed-rate bonds 'A+'*.

The Rating Outlook is Stable.

*All Fitch-rated IHFA single-family bond programs include a series of class III bonds which are secured by the assets and revenues of the respective trust estates and are additionally secured by an IHFA general obligation (GO) pledge. The 'A+' rating assigned to the class III bonds reflects the 'A+' rating assigned to the creditworthiness of the IHFA GO pledge.

RATING RATIONALE:

The 'AAA' and 'AA' ratings on the classes I and II of the 2010 series A bonds reflect the credit quality of the December 2009 trust estate's collateral, the adequacy of projected revenues to pay debt service, the credit enhancement provided by the 17% debt subordination at time of issuance underlying the class I bonds, and the 8% debt subordination underlying the class II bonds. In addition, the classes I and II bonds have minimum asset requirements of 111% and 102%, respectively, directing revenues to be used to call bonds of that class prior to paying debt service of the next junior class.

The 2009 series 1-A bonds were issued in December 2009 and is the first release from the $172.1 million 2009 A escrow bonds under the series indenture dated Dec. 1, 2009. Bond proceeds will be used to finance the purchase of single-family mortgages. The loan composition is expected to be 75-80% FHA, VA and RD with the remaining 20% conventional loans. The funds were initially held in an escrow account bearing interest at a short-term rate and are converted to a long-term rate when released from escrow. All bonds issued under the indenture are or will be in the fixed-rate mode.

The Stable Outlook reflects the available general fund reserves, historically strong operating performance of IHFA, the low loan loss expectations for the programs based on the underlying quality of the assets, and the substantial asset parity requirements for the classes I and II bonds.

KEY RATING DRIVERS:

--Non-origination of loans and impact it has on available GO funding;

--Loans are projected to be approximately 80% government-backed (FHA/VA/RD) and 20% conventional;

--Upon maturity of the class III bonds in 2024, exposure of the class II bonds to unanticipated program losses that surpass indenture funds may put pressure on Idaho's general obligation credit profile.

SECURITY:

The 2009 A and 2010 A single-family mortgage bonds are being issued under a master indenture that pledges revenues, investment earnings, reserves, and other trust funds to secure the bonds. The class III bonds are secured by the general obligation pledge for payments of scheduled principal and interest at final maturity.

CREDIT SUMMARY:

As of June 30, 2010, there was $190 million in GO-backed debt outstanding, reflecting a 1.24 times (x) debt-to-equity ratio when including the bond rating compliance and loan guaranty trust funds balance of $153.7 million. The ratio has decreased significantly from 1.82x in June 2009, reflecting the increase in bond rating compliance and loan guaranty trust funds and the decrease in the amount of GO debt issued and the redemptions of GO debt over the past few years. The bond rating compliance and loan guarantee trust is the association's primary source of unpledged assets, providing liquidity and credit support to its commercial paper (CP) and bond programs. The trust is derived from various reserve accounts.

Key credit concerns for the GO pledge include IHFA's need to obtain replacement liquidity at affordable rates for its outstanding variable-rate demand bonds (VRDOs) under the 2000, 2003, and 2006 indentures as standby bond purchase agreement (SBPA) contracts expire in the next few years.

The delinquency rates for IHFA loans have historically been below state and national figures. IHFA had a total single-family portfolio of approximately 20,000 loans as of June 30, 2010 with loans delinquent by two or more payments at 3.05% of the entire IHFA loan portfolio. This is an increase from 2.87% at March 31, 2010, but still well below the 5.06% of FHA fixed-rate loans in the state and 6.80% of FHA fixed-rate loans in the U.S. with two or more delinquent payments at June 30, 2010.

Based on the June 30, 2010 audited financial statements, IHFA's financial performance remains stable, in line with previous years. Net interest spread decreased in fiscal 2010 to a negative 5.3% from 2009 when it was negative 1.4%. In 2008 and 2009 the spreads were positive at 14.7% and 19.0%, respectively. While the audited financials show net operating revenues of $11.5 million, when adjusting for unrealized losses, net operating revenues show income of $5.6 million.

IHFA was created by the state Legislature in 1972 to promote affordable housing opportunities in the state through the issuance of notes and bonds. IHFA is an independent public body with its main office in the city of Boise, where most of its staff of roughly 131 is located.

Additional information is available at www.fitchratings.com'.

In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Bond Counsel, Underwriter, and Mortgage Bankers Association.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated Aug. 16, 2010;

--'State Housing Finance Agencies General Obligation Rating Criteria', dated April 6, 2009;

--'State Housing Finance Agencies - Single-Family Mortgage Program Rating Guidelines', dated Nov. 26, 2008.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565

State Housing Finance Agencies General Obligation Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=431758

State Housing Finance Agencies - Single-Family Mortgage Program Rating Guidelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=416066

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