OREANDA-NEWS. Fitch Ratings has assigned a 'AA-' rating to Idaho Housing Finance Association's (IHFA) $63.8 million single-family mortgage 2016 Series 1 bonds under the 2006 Indenture. Fitch has also upgraded the following outstanding class I bonds under the 2006 Indenture to 'AA-' from 'A+':

--$170,250,000 2012 Series A;

--$111,200,000 2013 Series A.

The Outlook is Stable.

SECURITY

The single-family mortgage bonds are issued under a master indenture that pledges revenues, investment earnings, reserves, and other trust funds to secure the bonds.

KEY RATING DRIVERS

UPGRADE RATIONALE: The ratings on the 2016 Series 1 bonds and the upgrade of the Indenture class I bonds reflect improved projected asset parity ratios, adequate program provisions as reflected in the cash flow projections, and the composition of the indenture's loan portfolio.

SUFFICIENT ASSET PARITY: Consolidated cash flows incorporating the issuance of the 2016 Series 1 refunding bonds demonstrate that the Indenture Class I bonds maintain 110% asset parity under a variety of Fitch stress scenarios. In some high prepayment stress scenarios, however, the program relies upon an external GO contribution to maintain the 110% asset parity ratio. These cash flows also incorporate the assumption that IHFA will liquidate approximately $10 million in REO loans under the indenture. Fitch has assumed partial credit for these loans in the cash flows.

IMPROVED DEBT STRUCTURE: A portion of the existing swap contracts that remain under this indenture will be terminated with the restructuring. There are no variable rate demand bonds under this indenture; only floating rate notes which have no demand feature remain. Going forward, the reduction in some swap agreements should reduce some of the negative arbitrage and program losses to the Indenture.

WEAK BUT IMPROVING LOAN PORTFOLIO: As of Dec. 31, 2015, the loan portfolio was comprised of approximately 54% whole loans insured by a mix of various pmi providers, 36% were government insured or guaranteed (FHA/VA/RD) and 10% were uninsured loans. The portfolio's loan performance has improved with 60+ day delinquencies reported as 2.0% as of March 30, 2016 which is down from 8.0% in September 30, 2013. However, the program has experienced cumulative loan losses between FY 2010 - FY 2015 of $20.6 million. Program cash flows include loan loss stresses which incorporate the risk of these loans in the portfolio and demonstrate the maintenance of 110% asset parity.

RATING SENSITIVITIES

INABILITY TO MAINTAIN PROGRAM PROVISIONS: Any failure to meet the asset parity requirements on the Class I bonds would be viewed as a credit negative and would most likely result in a downgrade of the program ratings.

CREDIT PROFILE

Fitch downgraded the bonds to 'A+' from 'AAA' and placed the bonds on Rating Watch Evolving on April 11, 2016 to reflect the fact that Class II and Class III bonds under the 2006 Indenture were redeemed on Jan. 1, 2016 resulting in the elimination of the debt subordination of the Class I debt. The downgrade reflected the reduced asset parity level to less than 100% following the redemption. Fitch viewed the 'A+' rating on the bonds as being tied to IHFA's GO rating as the indenture was no longer self-supporting in a stressed scenario.

With the issuance of the 2016 Series 1 bonds, IHFA is planning to refund a portion of the bonds under the 2006 Indenture, whereby outstanding Class I 2012 A bonds (floating rate notes) will be refunded with 2016 Series 1 Class I fixed-rate bond proceeds combined with a portion of a $42.6 million floating rate general obligation loan from Barclays.

The amended indentures provide for adequate asset parity requirements of 110% for the outstanding Class I bonds and for the new Class I bonds. This is lower than the asset parity requirements of previous supplemental indentures prior to the refunding, however, the reduced levels provide the Association with greater flexibility to financially manage the program. Though the Issuer however has the ability to optionally redeem bonds without meeting the asset parity requirements, the current Indenture cash flow projections demonstrate maintenance of these levels throughout the term of the bonds under almost all stress scenarios. There are two high prepayment scenarios which demonstrate maintenance with limited GO support.

The cash flow projections incorporate the proceeds of a loan from Barclays Bank PLC to the indenture in the amount of $42.6 million of which $35 million will be used to refund outstanding bonds and the remainder will be used to pay swap termination payments. This loan is backed by IHFA's general obligation pledge (which is currently rated 'A+' Stable) and it contributes to an improved asset parity position over the life of the bonds.

As of March 31, 2016, the loan portfolio had a delinquency rate (60+ days) of 2.0%, which is below the state and national averages of 2.59% and 5.18% respectively as of the same date.