OREANDA-NEWS. Fitch Ratings assigns an 'AA-' rating to the following Massachusetts Housing Finance Agency's (MHFA or Mass Housing) housing bonds:

--$61.3 million MHFA housing bonds, 2016 series D & E.

The bonds are expected to be sold the week of July 18, 2016 and close on or about July 28, 2016.

The Rating Outlook on all bonds is Stable.

SECURITY

The 2016 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 over potential loan losses. Approximately 68% of the multifamily loans (based on outstanding loan balance) are FHA insured, primarily under the FHA risk share program. Of the remaining 32%, approximately two thirds of the properties receive federal or commonwealth subsidies.

SUFFICIENT ASSET PARITY: As of fiscal year (FY) 2015 audited financial statements, the program had an asset parity ratio of 120%, a net interest spread of 27%, and a net operating margin of 18%. The most recent consolidated third party cash flow statements which incorporate various Fitch interest-rate and bank bond stress scenarios, demonstrate a minimum asset parity ratio of 114.8% for the remaining life of the bonds.

SOUND LOAN PORTFOLIO: There are approximately 300 multifamily developments, with an outstanding loan balance of approximately $1.6 billion. The projects are well-seasoned and relatively dispersed throughout the state of Massachusetts. The portfolio has a strong history of performance and currently has only one delinquent mortgage which represents less than 0.1% of the portfolio. Additionally, current levels of 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 Fitch views their management oversight as a credit strength.

RATING SENSITIVITIES

REMOVAL OF EXCESS ASSETS: The housing bond program's asset parity requirement per the general resolution is 101% and, if met, Massachusetts Housing Finance Agency (MHFA) can remove funds, which could present negative rating pressure. However, Fitch considers the risk of removal of assets beyond amounts sufficient to cover Fitch stress assumptions to be remote given management's history of leaving sufficient funds within the resolution.

CHANGES IN PORTFOLIO COMPOSITION: The program currently has limited flexibility to take on additional construction risk; therefore, substantial additions of new construction projects and/or material additions of uninsured projects could put negative pressure on the rating.

CREDIT PROFILE

The 2016 series D & E is the 45th issuance under the general resolution and are issued on parity with approximately $1.7 billion in outstanding bonds. The 2016 series D & E bond proceeds along with other funds within the bond program will be used to provide financing for certain multifamily residential developments.

One of the proposed new loans to be funded is Genesis Homes, a 209 unit development for the elderly located in Brighton. Bond proceeds and low income housing tax credits will be used to acquire and rehabilitate the property. The total loan commitment amount is $56.8 million. The property will generate revenue from existing units during construction. The permanent loan is expected to be insured under the FHA Risk Share program at the 50/50 risk sharing tier.

The second proposed new loan to be funded is Palmer Green Estates, a 156 unit property located in Palmer. This is a Section 8 property in need of rehabilitation and modernization. Bond proceeds will finance $11.5 million for construction and permanent financing.

The third property to be funded with bond proceeds is for the rehabilitation of Riverview Homes, a 120 unit property located in Pittsfield. A large portion of the units are covered by Section 8 contract subsidy and the remainder of the units are considered tax credit units. The construction/permanent loan will be $4.2 million.

The underlying portfolio consists of approximately 300 multifamily developments that were previously financed under or transferred into the resolution. The aggregate outstanding mortgage balance is approximately $1.6 billion.

The portfolio has a strong presence of insurance as approximately 68% of the portfolio is insured, primarily under the FHA risk-share program. Of the remaining 32%, approximately 64% receive federal or commonwealth subsidy payments.

This program has been the main source of funding for MHFA's multi-family loans over the last few years. The portfolio of loans is well-seasoned and its distribution aligns with the population density throughout the state of Massachusetts, with approximately 37% 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 2015 audited financial statements, the program had an asset parity ratio of 120%, a net interest spread of 27%, and a net operating margin of 18%. Additionally, the most recent consolidated third party cash flow statements which incorporate various Fitch interest-rate and bank bond stress scenarios, demonstrate a minimum asset parity ratio of 114.8% for the remaining life of the bonds.

This asset parity ratio demonstrates that the program overcollateralization position is sufficient to address Fitch stress scenarios for the current rating level. 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 continues to monitor. Mass Housing's ability to withdraw assets down to the general resolution's requirement of 101% asset parity ratio could potentially present a concern if exercised. These areas of potential concern, however, are mitigated by the program's strong financial position and Mass Housing's history of leaving sufficient excess assets within the resolution.