Fitch Rates Vermont HFA Multiple Purpose Bonds 2014 Series A & B 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA' rating to the following Vermont Housing Finance Agency (VHFA) bonds:

--$25.75 million VHFA multiple purpose bonds, 2014 series A;

--$20 million VHFA multiple purpose bonds, 2014 series B.

Additionally, Fitch affirms the ratings on approximately $146 million in parity debt (see full list at the end of this release).

The Rating Outlook for all bonds is Stable.

SECURITY

The bonds are general obligations of the agency and are secured by single-family mortgages, portions of multi-family loans, mortgage-backed securities and certain cash and investments held under the resolution. The multiple purpose bond program rating does not rely on the general obligation pledge to maintain the 'AA' rating currently assigned to the bonds.

KEY RATING DRIVERS

STRONG PROGRAM OVERCOLLATERALIZATION: As of FY 2013, the program had 125% overcollateralization (OC) which is sufficient for its 'AA' rating. Additionally, stressed cash flows illustrate a minimum of 122.3% OC under Fitch stressed scenarios.

MODERATELY SOUND PORTFOLIO PERFORMANCE: The portfolio's performance is currently adequate for single-family loans and strong for multi-family loans; mitigating the potential for losses to the program. Additionally, actual loan losses for this program have been minimal since program inception in 2007.

EXPOSURE TO VARIABLE-RATE DEBT: Variable-rate demand obligations (VRDOs) make up 29% of bonds outstanding under this indenture and are all swapped to a synthetic fixed-rate.

INDENTURE PROVISIONS: The supplemental indentures allow for program funds to be withdrawn down to 102% asset parity.

RATING SENSITIVITIES

WITHDRAWAL OF ASSETS: Withdrawing of program funds to the legal requirement of 102% would put negative pressure on the rating and may result in a negative rating action.

CREDIT PROFILE

The 2014 series A & B bonds are expected to be used to refund outstanding obligations previously issued under a separate single-family indenture and to finance the purchase of mortgage-backed security (MBS) certificates. In conjunction with the refunding of previously issued debt obligations, the mortgage loans and certificates securing the refunded bonds will be transferred to this indenture.

As of May 31, 2014, the multiple purpose portfolio consisted of: 63.1% single-family whole loans, 26.7% MBS certificates, and 10.1% multi-family loans. The single-family whole loan portion of the portfolio contains: 43% uninsured (with an 80% LTV or less), 42.6% privately insured (primarily by Mortgage Guaranty Insurance Corporation), and 14.4% federally insured (FHA/RD). Approximately 6.3% of the single-family loans are delinquent (60+ days) and actual losses in the program have been minimal since inception in 2007.

The multi-family housing loans, which have an outstanding mortgage balance of $15.6 million, are associated with elderly and family developments diversified throughout the state of Vermont. The loans are made up of 14 separate multi-family developments consisting of 454 units. Twelve of the 14 developments are either partially or fully subsidized under Section 8. Currently, there are no delinquencies in the multi-family portfolio.

In addition to the single-family whole loans, the multi-family loans, and the MBS certificates, the program has approximately $19.1 million in cash and investments which are invested in highly-rated securities. As of FY 2013, the program demonstrated an asset parity position of 125%. Under a variety of Fitch stress scenarios, the program demonstrated a minimum of 122.3% OC for the life of the bonds. This level of OC is sufficient to support the 'AA' rating on the program given the current composition of the portfolio. 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.

Fitch has also affirmed the following VHFA multiple purpose bonds at 'AA':

--$20.46 million, series 2007 A;

--$26.29 million, series 2007 C;

--$14.78 million, series 2008 C;

--$2.59 million, series 2012 A;

--$38.08 million, series 2012 B;

--$12.11 million, series 2012 C;

--$6.5 million, series 2013 A;

--$9.47 million, series 2013 B;

--$15.89 million, series 2013 C.

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

Applicable Criteria and Related Research:

--'State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria' dated July 25, 2013;

--'Rating Criteria for Pooled Multifamily Housing Bonds' dated Dec. 12, 2013;

--'Revenue-Supported Rating Criteria', June 16, 2014.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Rating Criteria for Pooled Multifamily Housing Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725076

State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712476

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=838542

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Ryan J. Pami
Analyst
+1-212-908-0803
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Maura McGuigan
Senior Director
+1-212-908-0591
or
Committee Chairperson
Mario Civico
Senior Director
+1-212-908-0796
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Ryan J. Pami
Analyst
+1-212-908-0803
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Maura McGuigan
Senior Director
+1-212-908-0591
or
Committee Chairperson
Mario Civico
Senior Director
+1-212-908-0796
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com