Fitch rates Vermont HFA multiple purpose bonds 2013 series B & C 'AA', outlook stable

Fitch Ratings assigns an 'AA' rating to the $27.2 million Vermont Housing Finance Agency (VHFA) 2013 multiple purpose bonds which include the following series:
--$10.2 million series B (AMT);
--$17.0 million series C (non-AMT).
The long- and short-term rating on the 2013 series A variable rate bonds will be assigned nearer to closing.
In addition, Fitch affirms the 'AA' rating with Stable Outlook on the following outstanding multiple purpose bonds:
--2007 series A and B;
--2007 series C;
--2008 series C;
--2012 series A (Non AMT);
--2012 series B; (AMT);
--2012 series C.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the agency and are secured by single family mortgages, portions of multifamily loans, mortgage backed securities (MBS) 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 Fitch's current rating level.
KEY RATING DRIVERS
--STRONG PROGRAM OVERCOLLATERALIZATION: The program's high level of overcollateralization at 115% on a cash basis as of fiscal year 2012 provides cushion for: potential risks associated with any private mortgage insurer's failure to make payments on foreclosed mortgages and/or additional expenses associated with obtaining replacement liquidity.
--MAINTENANCE OF SOUND LOAN PERFORMANCE: The portfolio's performance is currently adequate for single family loans and strong for multifamily loans, mitigating the potential for losses to the program. Additionally, the asset portfolio includes 23% MBS.
--ECONOMIC PRESSURE WITHIN THE STATE: Risks associated with cyclical economic pressures in the state on the regional housing market may impact loan performance.
--LOW AMOUNT OF VARIABLE RATE DEBT: Variable rate demand obligations (VRDOs) make up only 28% of the bonds outstanding under this indenture.
--MAINTENANCE OF ASSET PARITY REQUIREMENT: Withdrawal of program funds below the legal requirement of 102% asset parity would have a negative impact on rating.
RATING SENSITIVITIES
ASSET PARITY SHORTFALL: Fitch believes there will be negative pressure on the bonds' rating if the asset parity levels fall below minimum indenture requirements. However, the likelihood of this occurring is remote given the current overcollateralization and the sound performance of the loans pledged to the multiple purpose bond program.
CREDIT PROFILE
The 2013 bonds are being issued to provide funds for the transfer of the following: $13.1 million single family whole loans and $.9 million MBS from the 1980 indenture; $11 million in new money MBS; and $10 million of multifamily loans from a previous indenture.
The single-family whole loan portion of the indenture, which makes up 68% of the portfolio, will consist of loans with an outstanding balance of $119.8 million at issuance. The insurance composition is as follows: 46% privately insured (with the bulk insured by Mortgage Guaranty Insurance Corporation, or 44% and 2% insured by other private mortgage insurers); 14% federally guaranteed by the U.S. Department of Agriculture/Rural Development (USDA/RD); and 40% uninsured with loan-to-value (LTV) ratios of 80% or less. The total loan portfolio also includes 23% MBS. As of March 31, 2013, 6.5% of the loans are delinquent 60 days or greater (including loans in foreclosure).
The multifamily housing loans, which after issuance will compose 9% of the portfolio with an outstanding mortgage balance of $16 million, are associated with elderly and family developments spread throughout all regions in Vermont. The loans are made up of $16 million in interest-bearing mortgages. Two thirds of the developments receive federal subsidy payments in the form of rental assistance payments under Section 8 of the U.S. Housing Act of 1937. There is one $5 million uninsured, unsubsidized development added to the portfolio. Overall, the portfolio has performed well. Currently, all loans are reported as current with no mortgage payment, escrow or replacement reserve delinquencies.
Following the transfer of single family loans and the MBS, the portfolio composition will be 68% single family loans, 23% MBS and 9% multifamily loans.
The program includes cash and investments in reserve funds totaling $21.5 million. The reserves are invested in highly rated, short-term securities and money market funds.
The most recent audited financial statement shows that the resolution's asset parity position was 121% as of June 30, 2011. On a cash flow basis the asset parity is 1.15% and increases thereafter.
The cash flow projections incorporate a last-day loan origination scenario, stressed interest rates and prepayment speeds, and a loan evaporation loss during the first seven years. The cash flows indicate that sufficient revenues and assets are available to pay scheduled debt service while maintaining sound asset parity ratios under the 20%, 100% and 500% prepayment scenarios which incorporate assumed loan losses.
This level of overcollateralization is sufficient to support the 'AA' rating based on the 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.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'State Housing Finance Agencies - Single Family Mortgage Program Rating Guidelines' dated Aug. 11, 2012;
--'Rating Criteria for Pooled Multifamily Housing Bonds' dated Dec. 21, 2012;
--'Revenue-Supported Rating Criteria', June 03, 2013.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=7...
Rating Criteria for Pooled Multifamily Housing Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=6...
State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=6...
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=795195
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Source: Fitch 7.1.2013