articles Ratings /ratings/en/research/articles/200507-how-job-losses-and-rent-moratoriums-might-affect-hfa-multifamily-program-performance-11481130 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List
COMMENTS

How Job Losses And Rent Moratoriums Might Affect HFA Multifamily Program Performance

COMMENTS

S&P Global Ratings Definitions

COMMENTS

This Time Is Different: An Anemic And Uncertain Passenger Recovery Will Challenge U.S. Airports' Credit Quality

NEWS

U.S. Airport Ratings Placed On CreditWatch Negative On Severe Passenger Declines And Weakening Credit Metrics

COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles


How Job Losses And Rent Moratoriums Might Affect HFA Multifamily Program Performance

Perhaps surprisingly, recent data indicate the majority of American renters paid their April rent. Market information generally is showing collections of over 90% for the month. With the United States shattering previous short-term records for unemployment filings and with eviction moratoriums in place, S&P Global Ratings had wondered whether rent collections could drop to the point where multifamily owners' ability to make their mortgage payments would be stressed and that forbearance provisions could encourage such behavior. The news this month is good, but the duration and severity of the economic downturn may affect that outcome over time, especially in certain hard-hit cities or regions. This article explores how this potential stress could affect housing finance agencies' (HFAs) highly rated multifamily programs.

image

Many governors have implemented stay-at-home mandates, in keeping with the social distancing guidance to mitigate the spread of the virus. At the same time, the federal government and some state and local governments have implemented foreclosure and eviction moratoriums to assure renters can stay in their homes during this period. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided, in section 4024, a temporary moratorium (90 days) on eviction filings when a multifamily property is insured, guaranteed, supplemented, protected, or assisted in any way by the U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994, including low income housing tax-credit properties. The Terner Center for Housing Innovation, in a recent report, sizes this group at 25% of all renter households. The U.S. Treasury recently updated its FAQ on its Coronavirus Relief Fund (included in the CARES Act) to clarify, among other things, that funding may be used to provide assistance to households with overdue rent payments to avoid eviction if deemed a necessary expenditure.

U.S. Economy Drops Into A Recession

The stay-at-home mandates have brought about a precipitous fall of the U.S. economy into a recession. We've seen record highs in unemployment claims totaling nearly 30 million over the last six weeks, and expect the recovery process to last for over one year. The Pew Research Center reported that 43% of U.S. adults indicate that they or someone in their household has lost a job or taken a pay cut due to the outbreak. For low income households this is an even higher share (52%). In our recent economic research titled "An Already Historic U.S. Downturn Now Looks Even Worse," published April 16, 2020, we note that headline unemployment could reach 18% in April and 19% in May, which would be closer to the reported Depression-era peak than the high during the global financial crisis. In this baseline scenario, the economy doesn't return to the previous cycle peak before third-quarter 2021.

April Apartment Rent Collections

Among conventional, market-rate apartments, the National Multifamily Housing Council (NMHC) found that 91.5% made a full or partial rent payment by April 26. While this is a welcome improvement from the 69% reported in the first week of April, 96% of apartment households paid their rent over the same period in 2019. In the context of our forecasted unemployment over the coming weeks, we suspect the percent of tenants making a rent payment could decline, particularly with May rent bills coming due. The NMHC Rent Payment Tracker's percentages are for conventional apartment units, and excludes certain other sectors, including subsidized affordable units, military housing and student housing.

Even in our baseline economic scenario, the effects will vary throughout the country. At its peak, over 90% of the U.S. population were under "stay-at-home" orders; as of today over half of the country's governors have allowed portions of their states to open. Regions that rely heavily on the tourism, leisure, and hospitality sectors may be among the most severely affected in terms of job losses and income declines, with stress also on the construction industry in states with certain delays or work stoppages. In contrast, renters with jobs that have transitioned to, or were already, working from home may fare better. RealPage, Inc. recently said that, in New Orleans, Las Vegas, and Detroit, fewer than 85% of renters made a payment through April 12, due at least in part to the positive cases of COVID-19 and implications for those metro areas' tourism. Statewide, RealPage, Inc. noted that rental collections were lowest in Oklahoma (86%), partly due to the energy market's decline, followed by Nevada, Louisiana, Kentucky, Alabama, and Michigan.

Can HFA Multifamily Programs Withstand Job Losses And Late Rent Payments?

The COVID-19 pandemic has reinforced the importance of a sufficient supply of affordable housing throughout the United States. HFA multifamily housing lending programs vary in size and operational complexities, but they all focus on funding housing for low and moderate income renters--the same renters who may be particularly affected by job losses and slowdowns in the service sectors, which experienced significant payroll contraction over the last two months. Especially in high-cost areas, unemployment payments, even with the added $600 per month through July, may not be sufficient to fully support expenses, including rent. Should rent collections drop significantly below levels reported to date, multifamily owners may strain to pay their mortgages.

Nevertheless, we believe HFA multifamily portfolios have the financial strength, flexibility and resources to perform at their current rating levels and that they can withstand any near term disruptions of mortgage payments. Despite their varying sizes, locations, and operational features, all rated multifamily programs have strong credit quality, with current ratings ranging from 'A+' to 'AAA'. In addition to the underlying metrics of the loans and resolutions, the programs benefit from the active and sophisticated management of HFA staff. Our initial conversations indicate staff is taking a proactive approach to managing this situation, with outreach to borrowers and exploring available tools to address any emerging risks.

The average loan level debt service coverage of 1.5x (as of 2019) provides the initial line of defense should rental receipts decline; furthermore, we expect property level reserves could provide additional liquidity if needed. Many of the loans within the resolutions benefit from federal rental support, loan level credit enhancement, and rigorous underwriting that includes operating and capital reserve requirements and annual reporting. In addition, many properties financed through these loans benefit from the Low Income Housing Tax Credit program, and the resulting oversight of multiple parties involved in the properties' financing that are incented to assure successful performance.

As the table shows, properties in rated HFA multifamily portfolios demonstrate high occupancy levels (averaging 97%), and thus a higher likelihood the properties will collect sufficient revenues to pay debt service. In some cases, these properties also benefit from at least one form of credit support, such as federally subsidized rent through Section 8 programs, which helps to stabilize the properties' rent collections even during turbulent economic times. This ranges from 6% to 61% of the program's outstanding mortgage balance, according to recent information we received from each HFA. Other credit support includes varying levels of mortgage credit enhancement including Federal Housing Administration, insurance, risk share agreements and GSE enhancement.

In addition, the resolutions benefit from strong overcollateralization and other liquidity provided by resolution level reserves. The median parity ratio for the multifamily resolutions we rate is 125% as of our last rating reviews, and have demonstrated sufficient strength to absorb our projected loan losses at their respective rating levels. In addition, all programs include a debt service reserve fund at least equal to the subsequent year's debt service payments, and some include other pledged reserves and the ability to access funds (through their general fund or from their state) if necessary.

HFA Multifamily Programs
(Data as of 2019)
Issuer Multifamily bonds outstanding (mil. $) Opening parity (%) Debt service reserve fund/other bond support Mortgage balance (mil. $) Weighted average occupancy (%) % total par with Section 8

California Housing Finance Agency Multifamily Housing Revenue Bonds III

256.8 203.1 CalHFA GO & DSRF 502.8 98.0 19.0

Colorado Housing & Finance Authority Multifamily Housing Project Bonds (Class I & II)

295.5 182.8 DSRF 402.2 95.0 12.0
Colorado Housing & Finance Authority Multifamily Housing Project Bonds Class III 159.2 118.8 CHFA GO & DSRF 402.2 95.0 12.0

Connecticut Housing Finance Authority, Housing Mortgage Finance Program Bonds*

627.6 123.7 DSRF w/state request to replenish 1,326.0 96.4 28.9

Illinois Housing Development Authority, Housing Bonds

215.1 190.0 IHDA GO & DSRF 240.5 97.0 52.0

Maine State Housing Authority, Mortgage Purchase Program Bonds§

304.0 120.1 DSRF w/State pledge to replenish 444.8 98.0 38.0

Massachusetts Housing Finance Agency, Housing Bond Program

1,658.0 115.7 DSRF 1,482.6 98.0 57.0

Michigan State Housing Development Authority, Rental Housing Revenue Bonds

1,373.5 117.0 MSHDA GO & DSRF 1,206.2 NA 35.8

Minnesota Housing Finance Agency, Rental Housing Bonds

46.8 394.3 MHFA GO & DSRF 133.2 96.0 22.0

New Jersey Housing and Mortgage Finance Agency, Multifamily Housing Revenue Bonds (2004 Resolution)

783.5 115.0 DSRF 663.4 97.2 15.0
New Jersey Housing and Mortgage Finance Agency, Multifamily Housing Revenue Bonds (1995 Resolution) 234.0 164.5 DSRF 241.1 95.0 6.0

New York City Housing Development Corp., Multi-Family Housing Revenue Bonds

6,897.0 120.9 DSRF 6,166.9 98.0 15.0

Pennsylvania Housing Finance Agency, Multifamily Bonds

9.5 121.0 PHFA GO & DSRF 10.4 98.0 N/A

Rhode Island Housing and Mortgage Finance Corp., Rental Housing Program Bonds

28.4 130.0 DSRF w/state MO pledge to replenish 31.7 98.0 12.0

Virginia Housing Development Authority, Rental Housing Bonds

1,717.7 186.5 VHDA GO pledge 3,087.9 95.0 6.0

Wisconsin Housing & Economic Development Authority, Housing Revenue Bonds

552.5 143.1 DSRF 500.6 96.0 24.0
* Portfolio also includes single family; $4.4 bil. in total mortgage loans outstanding; $4.3 bil. in total bonds outstanding. § Portfolio also includes single family; $1.4 bil. in total mortgage loans outstanding; $1.4 bil. in total bonds outstanding.

This report does not constitute a rating action.

Primary Credit Analysts:Marian Zucker, New York (1) 212-438-2150;
marian.zucker@spglobal.com
David Greenblatt, New York + 1 (212) 438 1383;
david.greenblatt@spglobal.com
Secondary Contact:Alan Bonilla, San Francisco + 1 (415) 371 5021;
alan.bonilla@spglobal.com
Research Contributor:Saurabh Khare, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.