articles Ratings /ratings/en/research/articles/210923-keeping-the-wolf-from-the-door-u-s-hfa-multifamily-programs-perform-well-during-the-pandemic-12117168 content esgSubNav
In This List
COMMENTS

Keeping The Wolf From The Door: U.S. HFA Multifamily Programs Perform Well During The Pandemic

COMMENTS

Cyber Risk In A New Era: Are Third-Party Vendors Unwitting Cyber Trojan Horses For U.S. Public Finance?

FULL

European Financial Stability Facility

NEWS

Regulatory Reinforcements Loom To Allay Runaway Housing Risks For Australian Banks, Says Report

COMMENTS

U.S. Local Governments Credit Brief: Minnesota Cities, Counties, And Schools


Keeping The Wolf From The Door: U.S. HFA Multifamily Programs Perform Well During The Pandemic

image

image

Multifamily Program Performance Exhibits Continued Stability

Our ratings on HFA multifamily programs are high investment-grade; ratings range from 'A+' to 'AAA' with most (40%) being 'AA+' (chart 1). S&P Global Ratings took one rating action in 2020, revising the outlook to positive from stable on Massachusetts Housing Finance Agency's housing bond resolution. We have taken no rating actions on HFA multifamily programs in 2021.

Chart 1

image

Underlying loans that comprise HFA multifamily programs continue to perform well through the second year of the pandemic. At year-end 2020, the median delinquency rate for HFA multifamily programs was very low, at 1.1%. In addition, according to HFA reports, many of the loans that entered forbearance have since been removed from watchlists and/or special servicing and are making debt service payments again.

Occupancy rates have, on average, remained high, due to the eviction moratorium and very high demand for affordable units. However, the moratorium has supported occupancy levels, and therefore, tenant delinquencies are a better indicator of project performance, which, for loans in HFA portfolios, has remained stable with few exceptions. This better-than-expected performance is, in our view, largely due to prudent underwriting, active HFA program management, and loan-level surveillance. Sponsors and property managers of the underlying affordable multifamily housing loans that comprise HFA multifamily programs typically have strong financials and loan-level reserves, and a deep commitment to affordable housing. Although across the U.S. estimates of tenants at risk of eviction remain very high, data and discussions with program management indicate the threat of mass eviction is not present at HFA-financed properties.

Prudent Planning And Operations Fortify Multifamily Programs During The Pandemic

For rated HFA multifamily programs, asset-to-liability parity strengthened in 2020 from 2019 as a whole, despite substantial uncertainty and challenges. Median fiscal 2020 opening asset-to-liability parity was 144% across the rated programs, demonstrating strong overcollateralization through a combination of mortgage loans and reserves. According to cash flow analysis, through a variety of stress scenarios, programs have sufficient balance-sheet coverage to absorb S&P Global Ratings-calculated loan losses commensurate with the rating level, as evidenced by median S&P Global Ratings-adjusted parity of 129% (chart 2), up from approximately 124% a year earlier. In the decade following the financial crisis, HFAs, as a group, reevaluated their strategic plans, bolstered balance sheets, and took advantage of market conditions in ways that have strengthened overall financial positions. They have identified and reduced risk and honed their oversight and monitoring practices. As a result, their parity levels have grown, positioning HFA programs well for tougher times. Repositioning and adaptable strategies, as evidenced by performance in 2020 and into 2021, have proven effective.

Chart 2

image

Multifamily Issuance Topped Single Family In 2020 And 2021

In the past 20 months, multifamily issuance has been notably strong, reaching peak levels in 2020 with more than $16.2 billion in debt, surpassing single-family issuance ($13.4 billion) by $2.8 billion, the largest margin in at least 10 years (chart 3). To date, 2021 continues this trend with issuance of more than $11.1 billion as of August 2021, on pace to again exceed single-family issuance by about $2 billion. The surge has largely been market driven and a byproduct of the interest and tax rate environment.

According to the National Low Income Housing Coalition's "The Gap: A Shortage of Affordable Homes" (March 2021), the U.S. has a shortage of nearly 7 million rental housing units for extremely low-income individuals. However, addressing this shortage will never alone be the driving factor for issuance levels. Although elevated levels of multifamily issuance might continue in the near term, the reinstatement of the Federal Finance Bank FHA-HFA multifamily risk-sharing program beginning this October may prove an attractive alternative financing path for HFAs. Furthermore, proposed legislation would reduce the tax-exempt bond financing threshold needed to generate low-income housing tax credits to 25% from 50%, which might also dampen multifamily issuance volume.

Chart 3

image

Unprecedented Support, But Money Is Slow To Reach Tenants In Need

The Emergency Rental Assistance (ERA) program, totaling $46.5 billion in funding to assist renters and rental property owners, constitutes significant and unprecedent federal support for those affected by the pandemic. The money is provided directly to states, U.S. territories, and local governments to aid eligible households. ERA is among the largest infusions of federal housing aid in decades. However, nine months after the first round of funding and six months after the second, many renters have not received aid and as the eviction moratorium ends, are finding themselves behind on rent, facing eviction.

According to data released by the Census Bureau's Pulse Survey on Aug. 25, 2021, approximately 11 million adults are behind on rent, and 1.2 million households are highly vulnerable to eviction over the next two months, given current income and past-due conditions. While the relief funds were intended to be spent over a three-year period, latest Treasury data show that only approximately $5.1 billion, or 11% of the $46.5 billion, has made it to renters and property owners, far less than anticipated at this point. On Sept. 7, House Committee on Financial Services Chairwoman Maxine Waters (D-CA) introduced a bill to reform the ERA program that includes many provisions intended to expedite application processing, remove barriers, and improve the delivery of relief money.

The current focus from Congress and the Biden Administration to address affordable housing needs could bode well for the sector. Several legislative initiatives proposed in Congress support the creation of additional affordable housing. In mid-April, three bills were introduced in Congress aiming to address affordable housing shortages; they focused on increased funding for infrastructure, equitable development, and furthering fair housing initiatives. More recently, on Sept. 1, the White House announced additional initiatives to expand the supply of affordable housing through a series of actions by the Department of Housing and Urban Development, the U.S. Treasury, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. State HFAs, as they have for decades, are expected to be heavily involved in meeting these initiatives, using their expertise, connections in the communities, and established affordable housing programs.

If It's Not One Thing, It's Another: Programs Benefit From Strategic Preparedness

The stability and success of HFA programs are, in our view, largely due to proactive and sophisticated management. Whether it is a pandemic, natural disaster, rising insurance and construction costs, cyber attacks, or any other disruption, HFA management must be proactive in its oversight and planning, building reserves to address short-term liquidity pressure and developing business models that bolster financial performance in the long term. The most successful entities have detailed strategic plans and policies that establish best practices, monitor risk exposures, and build financial resiliency. By combining detailed, specific policies and goals with nimble management, HFA programs have been able to maintain wealth and build reserves since the Great Recession, a strategy that has paid off during the difficulties of the pandemic economy.

Rated HFA Multifamily Programs
(In Alphabetical Order)
Entity Rating/Outlook
California Housing Finance Agency (Cal HFA) - Multifamily Housing Revenue Bonds III AA+/Stable
Colorado Housing & Finance Authority (Colo HFA) - Multifamily Housing Project Bonds AAA, AA+/Stable*
Connecticut Housing Finance Authority – Housing Mortgage Finance Program Bonds AAA/Stable
Illinois Housing Development Authority (IHDA) -- Housing Bonds AA+/Stable
Maine State Housing Authority-- Mortgage Purchase Program Bonds AA+/Stable
Massachusetts Housing Finance Agency (MassHousing) -- Housing Bond Program AA/Positive
Michigan State Housing Development Authority -- Rental Housing Revenue Bonds AA/Stable
Minnesota Housing Finance Agency -- Rental Housing Bonds AAA/Stable
New Jersey Housing and Mortgage Finance Agency (NJHMFA) -- Housing Revenue Bonds (1995 res) AA / Stable
New Jersey Housing and Mortgage Finance Agency (NJHMFA) -- Housing Revenue Bonds (2004 res) AA- / Stable
New York City Housing Development Corp. (HDC) -- Housing Revenue Bonds AA+/Stable
Pennsylvania Housing Finance Agency – Multifamily Bonds AA-/Stable
Virginia Housing Development Authority -- Rental Housing Bonds AA+/Stable
Wisconsin Housing & Economic Development Authority -- Housing Revenue Bonds AA/Stable
*Multiple ratings represent different classes of bonds within the same indenture.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Joan H Monaghan, Denver + 1 (303) 721 4401;
Joan.Monaghan@spglobal.com
Secondary Contact:Marian Zucker, New York + 1 (212) 438 2150;
marian.zucker@spglobal.com

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.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back