OREANDA-NEWS. Fitch Ratings has affirmed the ratings of the State of New York Mortgage Agency (SONYMA) mortgage insurance fund's (MIF) insurance accounts as follows:

--$4.1 billion in risk in force (RIF) and commitments in the project pool account (project account) at 'AA-';

--$507.6 million in RIF and commitments in the single-family insurance account (single-family account) at 'AA+'.

Additionally, Fitch affirms the following Dormitory Authority of the State of New York (DASNY) bonds supported by MIF's project pool account:

--$21.9 million DASNY Buena Vida Nursing Home revenue bonds, series 2013 A at 'AA-';

--$3.9 million DASNY Ryan/Chelsea-Clinton Community Health Center Inc. revenue bonds, series 2012 A at 'AA-'.

Fitch revises the Rating Outlook for the project account and the DASNY bonds to Stable from Negative.

The Rating Outlook for the single-family account is Stable.

SECURITY

The MIF is secured by all the reserves in the SONYMA MIF. Both the project and single-family accounts maintain individual reserve accounts.

KEY RATING DRIVERS

ADEQUATE RISK-TO-CAPITAL RATIOS: The project and single-family accounts maintain low risk-to-capital ratios (based on original loan balances) which are commensurate for their respective ratings. The revision of the Outlook to Stable on the project account reflects a relatively stable risk-to-capital ratio which has increased slightly to 2.77x as of March 31, 2016 (fiscal year [FY] 2016) from 2.65x as of March 31, 2014 (FY 2014) an increase of only 4.5%, and compares favorably with the 18.3% increase from FY 2012 to 2014.

CONTINUED STATE FINANCIAL SUPPORT: The amount of surtax receipts allocable to the MIF increased to $189 million in FY 2016 from $139 million in FY 2014. The state-mandated transfer of surtax receipts from the project account's reserves to the state was $75 million in FY 2016, a decline from $136 million in FY 2014. As a result, there was a positive excess retained by the MIF following transfers in FY 2016 in contrast to a negative position in FY 2014.

SOUND RESERVES/LOAN PERFORMANCE: All reserves are invested in highly-rated, liquid assets. Loan losses have historically been very low relative to the amount of risk insured. The decline in project account claims paid and pending claims from two years prior also contributed to the revision in Outlook. As of March 31, 2016, the total claims paid cumulatively out of the project account decreased by $2.4 million from two years prior as a result of recoveries. The pending claim amount for the project account also declined to eight claims totaling $19.4 million as of March, 31, 2016 from 18 claims totaling $36.5 million as of March 31, 2014.

PROJECT ACCOUNT DECREASED SNF RISK: Special needs facilities (SNFs), primarily Medicaid funded healthcare facilities that carry the most risk, have decreased to 2.8% of the portfolio as of March 31, 2016 from 4.5% of the portfolio in FY 2014 and 20% in FY 2007.

SUFFICIENT CAPITAL ADEQUACY AND OPERATING RATIOS: The project and single-family accounts' capital adequacy ratios demonstrate sufficient reserves and liquidity to cover stressed loan losses and claim amounts. Although the MIF's operating performance ratios are relatively strong, with the increasing size of the project account portfolio there has been continued reliance on the mortgage surtax receipts as an external revenue source.

RATING SENSITIVITIES

INCREASED RISK-TO-CAPITAL RATIO: If the risk-to-capital ratio on the project account increases above 3.0x, this ratio may no longer be consistent with the 'AA-' rating and could result in a downgrade.

STATE TRANSFERS: While surtax receipts have been increasing in recent years, the annual transfer amount to the state remains a credit concern for the project account, as continued transfers may weaken or restrict growth in reserve accounts. Either situation could put negative pressure on the project account's rating.

INCREASED COMMITMENTS/LOAN LOSSES: Significant increases in commitments or loan losses in either the project or single-family account without commensurate increases to reserves could increase risk to capital ratios and put negative pressure on the respective account's rating.

CREDIT PROFILE

BACKGROUND

The MIF was created in 1978 as a separate operating unit of SONYMA and is made up of two accounts: the project pool account and the single-family account. The project pool account primarily insures mortgages on multi-family housing, (approximately 70% of the portfolio), cooperative housing, and housing for the elderly. To a lesser extent, the project pool account insures mortgages on SNFs, elderly assisted-living residences, and retail and community service projects. The single-family account provides primary and pool insurance for single-family houses throughout the state of New York. Current reserve policies require the MIF to maintain reserves at a minimum of 20% of insured risk on all policies in force and commitments outstanding, with SNF projects requiring 40% of risk. Additionally, the MIF must reserve 100% of a project's insured mortgage liability on any project filing a claim.

RISK-TO-CAPITAL RATIOS

As of March 31, 2016, the project account's risk-to-capital ratio was 2.77x, which was a minimal increase from 2.65x in FY 2014. The single-family account's risk-to-capital ratio decreased to 1.92x in FY 2016 from 2.01x in FY 2014. The increase in the project account's risk-to-capital ratio is mainly attributed to the state's required transfer of $75 million out of the project account's reserves in FY 2016 combined with the addition of $107 million in new multi-family commitments. The state's ability to redirect the MIF's reserve funds is an on-going credit concern.

REVENUES

The MIF's sources of revenues are in the form of surtax receipts, investment earnings, fees, and premiums. MIF's main source of revenue is their allocable portion of the mortgage surtax receipts, which were $189 million as of the fiscal year ending March 31, 2016. The mortgage surtax receipts are collected by the county and then distributed to the MIF on a monthly basis. The amount of mortgage recording surtax receipts received has fluctuated in recent years, yielding a high of $198 million in 2008 and a low of $65 million in 2001. The $189 million for FY 2016 is a 36% increase from the $139 million received in 2014.

Given the increasing demand for SONYMA MIF project account insurance in recent years, there is an increased reliance on surtax revenues to bolster reserves to cover the additional insured risk that the increase in new commitments bring. While surtax revenues have increased in the last couple of years, the state has required transfers which has minimized the benefit of incoming revenue support. Continued transfers from the project account could further strain reserve accounts relative to insured risk and may put negative pressure on the rating. Credit concerns continue to revolve around the state's ability to redirect MIF reserve funds.

PROJECT POOL ACCOUNT

As of March 31, 2016, the project account had 1,005 policies in force (PIF) covering $2.8 billion in risk. Additionally, the project account had 252 commitments outstanding which totaled $1.3 billion in risk, for a total risk amount of $4.1 billion in 2016. This is an increase from the $3.6 billion in risk insured as of March 31, 2014. The increase in risk is attributable to the recent increase in demand for SONYMA insurance. With this volume expected to continue, more pressure is put on the MIF to increase reserves and rely on mortgage surtax receipts.

The project account currently has $1.49 billion in reserves which includes required reserves for PIF and commitments as well as excess reserves containing cumulative retained earnings. The account has a risk-to-capital ratio of 2.77x when factoring in all reserves. The project account has relatively low historical losses which total $122 million in aggregate claims paid since inception. This $122 million represents only 3% of PIF and commitment risk outstanding as of March 31, 2016.

In addition, a positive credit factor has been the decrease in insured risk exposure of SNFs as a percentage of the project account's portfolio in comparison to previous years. SNFs are the riskiest form of project due to their heavy reliance upon New York's Medicaid reimbursement system for funds. Within the current policies in force, there are 11 SNF facilities. Furthermore, insured amounts are $124 million, which is 2.8% of RIF and commitments. This is a significant decrease from 2007 when SNFs accounted for 20% of total risk. Overall, the credit concerns over SNFs are mitigated by the 40% reserve requirements on SNFs, the decreased proportion to total risk in comparison to previous years, and the lack of any additional SNFs insurance commitments.

SINGLE-FAMILY ACCOUNT

As of March 31, 2016, the single-family insurance account had a combined insured risk amount of $507.6 million, a decrease from $512 million as of March 31, 2014. This account consists of primary insurance and pool insurance policies. There are 36 pool insurance policies covering 27,023 loans, with an aggregate mortgage amount of $2.65 billion and an aggregate loss limit set at $460 million. On the primary insurance side, there are 1,155 policies in force with $45.3 million in risk in force as of March 31, 2016. In addition, the primary insurance covers 49 commitments totaling $2.3 million in risk. The decline in policies since 2014 reflects the fact that mortgages have amortized or have been foreclosed and removed from the portfolio faster than new loans have been originated.

The single-family account has historically demonstrated low levels of loan losses; however, the past several years there has been a rise in claims resulting from mortgages that began the foreclosure process around 2012. Aggregate claims paid increased to $46 million as of March 31, 2016, compared with $30.4 million as of March 31, 2014. The MIF expects the claim amount to continue at the current rates for another year as these mortgages finish the foreclosure process and then for the loan loss rate to stabilize.

As of March 31, 2016, the single-family account had a combined $264 million in reserves, which included required reserves for both primary and pool insurance as well as excess reserves containing cumulative retained earnings. Despite the increase in claims paid, the risk-to-capital ratio still declined over the same period given the decreasing size of both primary and pool insurance portfolios. As of March 31, 2016, the single-family account had a risk-to-capital ratio of 1.92x when factoring in all reserves, which is a decrease from 2.01x in March 31, 2014.