Fitch: Macro Stressors on Tax-Exempt Housing Create Negative 2013 Outlook

NEW YORK--()--A sluggish economy, prolonged housing market stress, and the continued negative rating outlook for the U.S. government lead to a negative outlook for tax-exempt housing in 2013, according to a new Fitch Ratings report.

'The longer the economic recovery lingers without marked improvement, the more downward credit pressure state housing finance agencies (SHFAs) will face, which could translate into more Negative Outlook assignments to mortgage programs and possible downgrades in 2013-2014,' said Maura McGuigan, Senior Director at Fitch. While the majority of Fitch's housing ratings currently have Stable Outlooks, in 2012, 21% of rating actions included a Negative Outlook.

'Sector fundamentals are negative and pressures remain on the profitability of SHFAs and their bond programs. Fitch expects fiscal 2013 will be as challenging for loan production as the last four years given the continued low interest rate environment, prolonged economic uncertainty in the housing market, and unemployment rates that remain high,' said McGuigan.

Conventional mortgage rates have experienced another year of all-time lows, which continue to make SHFA products uncompetitive. Low interest rates have had a dramatic impact on investment earnings for SHFAs and constrained profitability levels, compounding the problem of the SHFAs' inability to remain competitive and originate loans from their bond programs.

The relationship between the municipal market and treasuries has changed dramatically, which has led to the curtailment of traditional SHFA bond issuance and loan origination. SHFA issuance has also been affected negatively by the flight of traditional buyers from 30-year housing bonds, driving yields further and making loan origination economically challenging but not impossible.

SHFAs with a significant percentage of variable-rate debt in their overall debt structure continue to be exposed to the credit risks associated with bank facility expirations, which create a need for replacement often at a much higher cost than the original facility with fewer available providers, and the expense of swap terminations.

For more information, a special report titled '2013 Outlook: State Housing Finance Agencies' is available on the Fitch Ratings web site at www.fitchratings.com, or by clicking on the link below.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: 2013 Outlook: State Housing Finance Agencies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696037

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Contacts

Fitch Ratings
Maura McGuigan, +1-212-908-0591
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Charles Giordano, +1-212-908-0607
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Maura McGuigan, +1-212-908-0591
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Charles Giordano, +1-212-908-0607
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com