Fitch Rates Maryland CDA's Housing Rev Bonds 2016 Series A 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a 'AA+' rating to the following Maryland Community Development Administration (Maryland CDA, or MCDA) bonds:

--$15.73 million Maryland CDA housing revenue bonds, 2016 series A (Non-AMT).

The Rating Outlook on the bonds is Stable.

SECURITY

The resolution pledges all the mortgages in the loan portfolio consisting of multifamily, single family, and group homes as well as the funds pledged under the legal provisions of the resolution.

KEY RATING DRIVERS

PORTFOLIO LARGELY GUARANTEED OR PARTIALLY INSURED: As of June 30, 2016, approximately 94% of the multifamily portfolio is fully or partially guaranteed by the following entities: Ginnie Mae, Fannie Mae, Freddie Mac, or FHA.

SUFFICIENT ASSET PARITY: On a cash flow basis, the assets under the resolution show a minimum asset parity of 116% although Maryland CDA has the right to withdraw excess assets. However, by practice, Maryland CDA continues to maintain sufficient asset parity in the resolution.

CAPABLE MANAGEMENT OVERSIGHT: Maryland CDA has demonstrated strong programmatic oversight capabilities and has had a long successful history of administering multifamily programs.

RESOLUTION CONSIDERATIONS: The rating is constrained to its current level because of the issuer's ability to withdraw excess assets and to include various types of loans other than first lien mortgages.

RATING SENSITIVITIES

REMOVAL OF ASSETS: Removal of assets without corresponding debt reduction, resulting in a decline in asset parity, may present negative rating pressure.

INCREASE IN UNINSURED PORTION OF PORTFOLIO: There could be negative rating pressure if the uninsured portion of the portfolio materially increases.

CREDIT PROFILE

The 2016 series A bonds are the 54th series of bonds to be sold under a general bond resolution adopted on Nov. 1, 1996 and are on parity with all bonds issued previously under the resolution. The $15.7 million 2016 series A bonds will be used in part to finance three developments: Chestertown Cove, Southern Pines II and Brookside Station. All three projects are expected to have credit enhancement under the FHA risk-share program providing a 75/25 split on the risk of the projects.

The portfolio consists mainly of 54 mortgage loans for 48 multifamily residential developments which, as of June 30, 2016, had an aggregate outstanding mortgage balance of $221.5 million. Additionally, the portfolio consists of single-family residences and group homes which account for $7.7 million (3.3% of the portfolio) in loans. As of June 30, 2016, 94.1% of the multifamily portfolio was partially or fully guaranteed by a governmental entity such as Ginnie Mae (24.1%), Fannie Mae (4.2%), Freddie Mac (0.2%), or insured under the FHA risk-share program (65.6%).

Going forward, management expects all new projects will incorporate a 75/25 split under the FHA risk-share program. For the remainder of the portfolio, the Maryland Housing Fund (MHF) insures approximately 3.7% of the multifamily loan portfolio while 0.7% remains uninsured and 1.5% guaranteed by a letter of credit during the construction period. Additionally, MHF is responsible for paying MCDA's share of the claims under the FHA risk-share program.

In addition to the fact that the portfolio is largely guaranteed or insured, approximately 46% of the multifamily units in the portfolio also benefit from the receipt of rental assistance payments under Section 8 of the U.S. Housing Act of 1937, U.S. Department of Agriculture subsidy, or interest-rate subsidies under Section 236 of the National Housing Act. The remaining 54% of the units do not receive rental or interest-rate subsidies.

Credit concerns are related to the bond resolution allowing various types of loans including uninsured and second lien mortgages. These concerns are mitigated by the small portion of uninsured loans within the portfolio, the portfolio's strong asset parity position, management demonstrating strong programmatic oversight, and the consistent financial performance of the portfolio.

Relevant Committee Date: Sept. 16, 2015

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

Applicable Criteria

Rating Criteria for Pooled Multifamily Housing Bonds (pub. 03 Mar 2016)

https://www.fitchratings.com/site/re/875481

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/site/re/750012

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015426

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Kasia Reed
Analytical Consultant
+1-646-582-4864
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Ryan Pami
Associate Director
+1-212-908-0803
or
Committee Chairperson
Maura McGuigan
Senior Director
+1-212-908-0591
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kasia Reed
Analytical Consultant
+1-646-582-4864
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Ryan Pami
Associate Director
+1-212-908-0803
or
Committee Chairperson
Maura McGuigan
Senior Director
+1-212-908-0591
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com