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


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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.


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;
David Greenblatt, New York + 1 (212) 438 1383;
Secondary Contact:Alan Bonilla, San Francisco + 1 (415) 371 5021;
Research Contributor:Saurabh Khare, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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