Fitch Rates Massachusetts HFA's $67.92MM Housing Bonds 2014 D & E 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating on the following Massachusetts Housing Finance Agency's (MHFA or Mass Housing) housing bonds:

--$27.725 million housing bonds, 2014 series D;

--$40.195 million housing bonds, 2014 series E.

The bonds are expected to be sold the week of Dec. 3, 2014 and close on or about Dec. 11, 2014.

Fitch also affirms the 'AA-' rating on approximately $1.7 billion of parity housing bonds.

The Rating Outlook on all bonds is Stable.

SECURITY

The 2014 series D & E parity bonds are special obligations of MHFA and are secured by multifamily mortgages, investments, reserves, and revenues held under the general resolution adopted by MHFA on Dec. 10, 2002.

KEY RATING DRIVERS

INSURED/SUBSIDIZED PORTFOLIO: A majority of the underlying multifamily portfolio is either insured or subsidized. The insured portion of the portfolio mitigates risk from potential loan losses. Approximately 66% of the multifamily loans (based on outstanding loan balance) are FHA insured, primarily under the FHA risk share program. Of the remaining 34%, approximately two-thirds of the properties receive federal or commonwealth subsidies.

SUFFICIENT PROGRAM OVERCOLLATERALIZATION: The program has an asset parity ratio of 120% based on FY 2014 audited financial statements. Additionally, Fitch-stressed cash flows demonstrate sufficient asset parity throughout the term of the bonds as well as sufficient reserves to handle any cash flow interruptions from potential loan delinquencies.

SOUND LOAN PORTFOLIO: The 343 multifamily developments, with an outstanding loan balance of approximately $1.8 billion, are well-seasoned and relatively dispersed throughout the state of Massachusetts. The portfolio has a strong history of loan performance and currently has only one delinquent mortgage, which represents less than 0.1% of the portfolio. Additionally, current levels of rolling construction risk are mitigated by the strong levels of overcollateralization within the program.

STRONG MANAGEMENT OVERSIGHT: MHFA has a strong history of administering multifamily programs and its management is viewed as a credit strength.

RATING SENSITIVITIES

REMOVAL OF ASSETS: The program's asset parity requirement per the general resolution is only 101% and, if met, MHFA can remove funds, which could present negative rating pressure. However, Fitch feels this risk is remote given management's history of leaving funds within the resolution.

CREDIT PROFILE

The 2014 series D and E bonds are the 39th issuance under the general resolution and are issued on parity with approximately $1.7 billion in outstanding bonds. The 2014 series D bonds will be used to provide permanent financing for certain multifamily residential developments. The 2014 series E bond proceeds, as well as other funds available under the resolution will be used to acquire U.S. treasury obligations which will be deposited with the trustee and used to redeem certain outstanding housing bonds on Jan. 15, 2015.

The underlying portfolio consists of 343 multifamily developments that were previously financed under or transferred into the resolution. The aggregate outstanding mortgage balance is approximately $1.8 billion. The portfolio has a strong presence of insurance as approximately 66% of the portfolio is insured, primarily under the FHA risk share program. Of the remaining 34%, approximately two-thirds receive federal or commonwealth subsidy payments. On a loan balance basis, approximately 12% of the portfolio is both uninsured and unsubsidized. The portfolio is well-seasoned and is relatively dispersed throughout the state of Massachusetts, with approximately one-third of the portfolio located in Boston. Fitch views a portfolio with 40% or more in one market area as being highly concentrated. Any potential concerns over this portfolio's geographic concentration are currently mitigated by the program's overcollateralization levels.

As of FY 2014 audited financial statements, the program has an asset parity ratio of 120%. Additionally, the most recent consolidated cash flow statements, which incorporate various interest-rate and bank-bond stress scenarios, demonstrate a minimum asset parity ratio of 113.7% for the life of the bonds. This overcollateralization position is adequate for its current rating level and provides sufficient cushion for any disruption in cash flow from potential loan losses. The portfolio has a strong history of performance and currently has only one delinquent mortgage, which represents less than 0.1% of the portfolio.

The general resolution permits various types of loan financings, including both new and existing single-family and multifamily mortgages. The potential for unexpected changes in the portfolio's loan composition is mitigated by MHFA's ongoing disclosure for the bond program, which Fitch will continue to monitor. Other concerns center on Mass Housing's ability to withdraw assets down to the general resolution's requirement of 101% asset parity ratio. These concerns, however, are mitigated by the program's strong financial position and Mass Housing's history of leaving excess assets within the resolution.

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

Applicable Criteria and Related Research:

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

-- Revenue-Supported Rating Criteria, dated 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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=939655

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Contacts

Fitch Ratings
Primary Analyst
Ryan J. Pami
Analyst
+1-212-908-0803
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Maura McGuigan
Senior Director
+1-212-908-0591
or
Committee Chairperson
Charles Giordano
Senior Director
+1-212-908-0607
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Ryan J. Pami
Analyst
+1-212-908-0803
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Maura McGuigan
Senior Director
+1-212-908-0591
or
Committee Chairperson
Charles Giordano
Senior Director
+1-212-908-0607
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com