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Fitch Rates Maryland CDA's Residential Revenue Bonds 2014 Series C-E 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following long-term ratings to the Maryland Community Development Administration (MCDA, the Administration) residential revenue bonds (RRB):

--$43.1 million MCDA RRB, 2014 series C at 'AA';

--$25.3 million MCDA RRB, 2014 series D at 'AA';

--$53.1 million MCDA RRB, 2014 series E at 'AA'.

Additionally, Fitch affirms the 'AA' rating on approximately $1.7 billion in RRB (see full list below).

The Rating Outlook for the bonds is Stable.

SECURITY

The bonds are special obligations of the issuer, payable from the revenues and assets pledged under the bonds resolution.

KEY RATING DRIVERS

SUFFICIENT OVERCOLLATERALIZATION: The RRB program has demonstrated sufficient overcollateralization, even when Fitch stress scenarios are assumed. The cash flow projections, which incorporated various prepayment speeds and a loan loss assumption showed a minimum 111% asset parity for the remaining term of the bonds.

PRESENCE OF GOVERNMENT INSURANCE: The loan portfolio is comprised of 42% government-guaranteed loans (insured with 38% FHA, 2% VA, or 2% RD) and 8% of the portfolio is insured through CDA's insurance program (Maryland Housing Fund [MHF]). The remaining portfolio is made up of 48% private mortgage insurance (PMI) loans and 2% uninsured loans.

STRONG MANAGEMENT OVERSIGHT: MCDA has a well-tenured management team, which has a long and successful history of administering single family programs and continues to maintain the credit quality of the program by not diverting the excess collateral of the program.

HIGHLY CONCENTRATED: Over 45% of the underlying mortgages are concentrated in, and around, the city of Baltimore.

PORTFOLIO DELINQUENCIES: The delinquency rate (60+ days) of the portfolio is 13% which is viewed as a credit weakness.

RATING SENSITIVITIES

REDUCTION OF EXCESS ASSETS: Current asset parity of over 111% provides enough excess assets to withstand 'AA' stress scenarios. Reduction of those excess assets could put negative rating pressure on the program if assets are reduced.

LOAN DELINQUENCIES: Delinquency (60+) levels over 13% are a credit weakness. However, should actual delinquencies decline, the loan loss assumptions at the current rating may be reduced and result in the need for less overcollateralization. If delinquencies increase, an increase in the loan loss assumptions may result in a need for MCDA to provide additional overcollateralization to maintain the rating.

CREDIT PROFILE

The 2014 series C, D, and E bonds are the 106th through 108th series of bonds to be issued under a general bond resolution adopted in August 1997 and amended in July 2005. The bonds are on parity with all the bonds issued previously under the RRB resolution. The 2014 series C, D, and E bonds will be used to refund older debt obligations under this indenture. As of April 1, 2014, there are 56 series of bonds outstanding totaling $1.7 billion.

As of March 31, 2014, the underlying mortgage portfolio consisted of 12,670 mortgage loans totaling an outstanding principal amount of $ 1.5 billion. This is a decrease from two years ago when the portfolio had over $2.1 billion in mortgage loans, but is still much higher in comparison to the $992.4 million in mortgages that were in the portfolio in 2006. As of March 31, 2014, the underlying loan portfolio had delinquencies of over 13% which is slightly lower than six months ago when it was over 14%. In addition to high delinquencies, portfolio concentration is heavily focused in and around the city of Baltimore, which accounts for approximately 45% of the underlying mortgage pool.

While the portfolio has high delinquencies and geographic concentration, the program's high overcollateralization, management oversight, and the presence of government-backed insurance mitigate concerns over potential losses. The cash flow projections, which incorporated various prepayment speeds and a high loan loss assumption stressed at the 'AA' level, had a minimum asset parity of 111% over the life of the bonds under both the 20% and 500% prepayment speed cash flow scenarios.

The program's underlying mortgage loans are 42% government-insured loans (FHA, VA, and RD) and 8% MHF (Maryland Housing Fund) insured. Of the remaining 50%, 48% is insured by various private mortgage insurers while 2% is uninsured. MCDA is currently not underwriting new loans insured with private mortgage insurers; however, the Administration reserves the right to continue to do so in the future. Fitch does not currently express an opinion on any PMI providers and views the presence of PMI on a loan as adding no additional credit strength.

Fitch views MCDA's management staff overseeing the program as a credit positive to the bonds. The Administration has a well-tenured management team that has a successful history administering single family programs and has shown dedication to the credit quality of the program. In addition to the assets directly in the RRB program, management has added a collateral reserve fund and a general bond reserve to add credit support to the bonds. As of March 31, 2014, the collateral reserve fund held loans with an outstanding principal balance of $116 million and investment obligations in the amount of $183.3 million as additional collateral to support the bonds in the RRB program. While the 111% asset parity includes both the collateral reserve fund and the general bond reserve fund, it is important to note that MCDA has the right to withdraw money from the collateral reserve fund and general bond reserve fund as these funds are not directly pledged.

In addition, Fitch affirms the following ratings:

--$68.625 million MCDA residential revenue bonds, 2004 series A, B, G, H, & I at 'AA';

--$54.865 million MCDA residential revenue bonds, 2005 series A, B, D, & E at 'AA';

--$485.075 million MCDA residential revenue bonds, 2006 series A, B, E, F, G, H, I, J, K, L, O, P, & S at 'AA';

--$675.505 million MCDA residential revenue bonds, 2007 series A, B, C, D, E, F, G, H, I, J, K, & M at 'AA';

--$135.715 million MCDA residential revenue bonds, 2008 series A, B, C, D, & E at 'AA';

--$92.91 million MDCDA residential revenue bonds, 2009 series A, B & C at 'AA';

--$63.845 million MCDA residential revenue bonds, 2010 series A & B at 'AA';

--$85.745 million MCDA residential revenue bonds, 2011 series A & B at 'AA';

--$83.890 million MCDA residential revenue bonds, 2012 series A & B at 'AA';

--$91.5 million MCDA residential revenue bonds, 2014 series A & B at 'AA'.

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

Applicable Criteria and Related Research:

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

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

Applicable Criteria and Related Research:

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

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

Revenue-Supported Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=865354

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Contacts

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