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U.S. Mortgage Revenue Bond Program Rating Actions In Line With Expectations After Application Of Updated Criteria

 

Overview

Last fall, S&P Global Ratings published its "Mortgage Revenue Bond Programs" (MRBP) criteria, superseding its "Single-Family Whole Loan Programs" and "Single-Family Second Mortgage Loans" criteria and partially superseding its "Methodology for Rating U.S. Public Finance Rental Housing Bonds, U.S. Federally Enhanced Housing Bonds Rating Methodology", and "Global Framework For Assessing Operation Risk In Structured Finance Transactions" criteria. At the same time, we published a list of 25 ratings placed under criteria observation (UCO; see "Certain U.S. Public Finance Mortgage Revenue Bond Program Ratings Placed Under Criteria Observation," published Oct. 10, 2022). In the second quarter of 2023, we completed our review of these ratings, in addition to the remainder of ratings within scope.

At the time of initial publication, we expected a one-notch rating impact in either direction for less than 10% of our rated universe. In addition, several ratings were designated as UCO to account for additional information needed to perform our hedging risk analysis, although no rating change was necessarily expected.

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Criteria Application Results

As of April 10, 2023, the size of our rated universe is unchanged at 74 ratings outstanding. We withdrew the rating on one program following the full redemption of bonds outstanding and closure of the indenture, and added one program, previously linked to the housing finance agency's general obligation (GO) pledge, which was not included in our initial count. Our rating actions across the portfolio were as follows:

  • 86.4% affirmed;
  • 9.5% raised by one notch; and
  • 4.1% with outlook revised and affirmed.

Chart 1

image

From the 25 ratings designated as UCO, six one-notch upgrades resulted from the implementation of the criteria, based primarily on an ability to cover S&P Global Ratings' assumed losses at a higher rating level and the absence of other constraining factors. See table 1, below, for additional details on these upgrades. These programs spanned a diversity of asset types, with two single-family whole loan-based programs, one composed of multifamily whole loan assets, and three hybrid programs with multiple asset types. Half these ratings were associated with resolutions from which bonds are actively issued, while the other half were considered inactive, or in "runoff."

Within the 19 affirmations designated UCO, there were two outlook revisions resulting from implementation of the criteria. The outlook on the Michigan State Housing Development Authority's single-family mortgage revenue bond resolution was revised to stable from negative, and the Virginia Housing Development Authority's rental housing bond resolution had its outlook revised to stable from positive.

Chart 2

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Criteria Application On The Remainder Of The MRBPs

As of April 10, 2023, six months from the criteria publication date, we have completed reviews on the entire universe of MRBP ratings in addition to those marked as UCO. With the exception of one rating, all were affirmed. Massachusetts Housing Finance Agency's housing bond resolution, not designated as UCO, was upgraded due to a strengthening in program performance. Similarly, the outlook on Virginia's homeownership bond resolution was revised to stable from positive, while the rating was affirmed.

We discontinued our rating on California Housing Finance Agency's home Mortgage Revenue Bond program following confirmation that all bonds were defeased and the program closed. We also added the Iowa Finance Authority's multifamily mortgage bond program--secured by the GO pledge of the authority--to the MRBP rated issuers.

On April 27, 2023, Nebraska's single-family housing revenue bond indenture was upgraded one notch to 'AAA', following the receipt of detailed loan information and cash flows reflecting our assumptions for stressed interest and reinvestment rates. While we acknowledge the potential for future rating changes based on fluctuation in program credit quality, or the availability of more detailed loan information for some programs, we nevertheless expect credit stability will remain high, with any future rating changes likely limited to one notch.

Programs With Ratings Placed Under Criteria Observation
Asset types Active/inactive As of Oct. 10, 2022 As of April 10, 2023 Change
Colorado Housing and Finance Authority multifamily/project bonds Class I Hybrid Active AAA/Stable AAA/Stable -
Colorado Housing and Finance Authority multifamily/project bonds Class II Hybrid Active AA+/Stable AA+/Stable -
Colorado Housing and Finance Authority single-family mortgage bonds Class I Hybrid Active AAA/Stable AAA/Stable -
Colorado Housing and Finance Authority single-family mortgage bonds Class II Hybrid Active AA+/Stable AA+/Stable -
Colorado Housing and Finance Authority single-family mortgage bonds Class III Hybrid Active AA/Stable AA/Stable -
Connecticut Housing Finance Authority housing mortgage finance program bonds Hybrid Active AAA/Stable AAA/Stable -
Georgia Housing and Finance Authority single-family mortgage bonds SFWHLLN Active AAA/Stable AAA/Stable -
Illinois Housing Development Authority home mortgage revenue bonds Hybrid Inactive AA/Stable AA+/Stable 1 notch upgrade
Maine State Housing Authority mortgage purchase bonds Hybrid Active AA+/Stable AA+/Stable -
Michigan State Housing Development Authority rental housing revenue bonds MFWHLLN Active AA/Stable AA+/Stable 1 notch upgrade
Michigan State Housing Development Authority single-family mortgage revenue bonds SFWHLLN Active AA+/Negative AA+/Stable Outlook revision
Minnesota Housing Finance Agency residential housing finance bonds Hybrid Active AA+/Stable AA+/Stable -
New Jersey Housing and Mortgage Finance Agency multifamily housing revenue bonds (1995 resolution) MFWHLLN Inactive AA/Stable AA/Stable -
New Jersey Housing and Mortgage Finance Agency multifamily revenue bonds (2004 resolution) MFWHLLN Active AA-/Stable AA-/Stable -
New Jersey Housing and Mortgage Finance Agency single-family housing revenue bonds SFWHLLN Active AA/Stable AA/Stable -
Tennessee Housing Development Agency residential finance program bonds SFWHLLN Active AA+/Stable AA+/Stable -
Texas Department of Housing and Community Affairs single-family mortgage revenue bonds SFMBS Active AA+/Stable AA+/Stable -
Texas Department of Housing and Community Affairs junior-lien single-family mortgage revenue bonds SFMBS Active AA+/Stable AA+/Stable -
Utah Housing Corp. single-family mortgage bonds, Class III SFWHLLN Inactive AA-/Stable AA/Stable 1 notch upgrade
Utah Housing Corp. single-family mortgage bonds (New Issue Bond Program), Class I SFWHLLN Inactive AAA/Stable AAA/Stable -
Utah Housing Corp. single-family mortgage bonds (New Issue Bond Program), Class III SFWHLLN Inactive AA/Stable AA+/Stable 1 notch upgrade
Virginia Housing Development Authority rental Housing bonds MFWHLLN Active AA+/Positive AA+/Stable Outlook revision
Wisconsin Housing and Economic Development Authority home ownership revenue bonds (1987 resolution) Hybrid Active AA/Stable AA+/Stable 1 notch upgrade
Wisconsin Housing and Economic Development Authority home ownership revenue bonds (1988 resolution) Hybrid Active AA+/Stable AA+/Stable -
Wisconsin Housing and Economic Development Authority housing revenue bonds Hybrid Active AA/Stable AA+/Stable 1 notch upgrade
SFWHLLN--Single-family whole loan. MFWHLLN--Multifamily whole loan. SFMBS--Single-family mortgage-backed securities.

This report does not constitute a rating action.

Primary Credit Analyst:Daniel P Pulter, Englewood + 1 (303) 721 4646;
Daniel.Pulter@spglobal.com
Secondary Contact:Marian Zucker, New York + 1 (212) 438 2150;
marian.zucker@spglobal.com

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