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

--$97.7 million MHFA housing bonds, 2015 series G, H and I.

The bonds are expected to be sold the week of Dec. 7, 2015 and close on or about Dec. 17, 2015.

In addition, Fitch affirms the 'AA-' rating on approximately $1.7 billion of outstanding parity housing bonds.

The Rating Outlook on all bonds is Stable.

SECURITY

The 2015 series G, H and I 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: The program has an asset parity ratio of 114.6% based on third party cash flows that incorporate Fitch-stress assumptions. Additionally, there are sufficient reserves to handle cash flow interruptions from potential loan delinquencies.

SOUND LOAN PORTFOLIO: The 302 multifamily developments, with an outstanding loan balance of approximately $1.7 billion, 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: While the program currently has flexibility to take on additional construction risk, substantial additions of new construction projects and/or material additions of uninsured projects could put negative pressure on the rating.

CREDIT PROFILE

The 2015 series G, H and I is the 43rd issuance under the general resolution and are issued on parity with approximately $1.7 billion in outstanding bonds. The 2015 series G, H and I bond proceeds will be used to provide financing for certain multifamily residential developments.

Series G and series H are a mix of serial and term bonds maturing on various dates from December 2012 through December 2051. The series I bonds are subject to a mandatory tender on Dec. 1, 2021. If the funds from refinancing proceeds or other means are not available to purchase the bonds on that date, the bonds will convert to a stepped rate based on a three month LIBOR rate with a maximum of 12%.

The underlying portfolio consists of 302 multifamily developments that were previously financed under or transferred into the resolution. The aggregate outstanding mortgage balance is approximately $1.7 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 MHFS's multi-family loans over the last few years. The portfolio of loans is well-seasoned and its dispersements align 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 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%. 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 114.6% 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.