Fitch Affirms Idaho Housing & Finance Association’s 2009 Indenture Cls I & II Bonds; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings for Idaho Housing and Finance Association's (IHFA) single-family mortgage bonds (2009 Indenture):

--$27.72 million single-family mortgage class I bonds, series 2009 C at 'AAA';

--$23.97 million single-family mortgage class I bonds, series 2010 A at 'AAA';

--$2.67 million single-family mortgage class II bonds, series 2009 C at 'AA';

--$2.24 million single-family mortgage class II bonds, series 2010 A at 'AA'.

The Rating Outlook for the bonds is Stable.

SECURITY

The single-family mortgage bonds were issued under a master indenture that pledges revenues, investment earnings, reserves, and other trust funds to secure the bonds. The assets and revenues of the trust estate secure the class I and II bonds on a senior basis to the class III bonds which are also backed by the general obligation (GO) pledge of the issuer's assets (rated 'A+'; Stable Outlook by Fitch).

KEY RATING DRIVERS

SUFFICIENT ASSET PARITY LEVELS: As of Dec. 31, 2014, the class I and II bonds had asset parity levels of 117% and 107%, respectively.

STRONG PROGRAM PROVISIONS: The supplemental indentures provide for strong asset parity requirements of 111.5% for the class I bonds and 102% for the class II bonds.

FEDERALLY INSURED PORTFOLIO: The program's loan portfolio is 74.4% insured by FHA, 20.7% insured by RD, and 4.4% insured by VA, mitigating concerns over potential loan losses.

SUCCESSFUL MANAGEMENT PERSONNEL: IHFA has an experienced management team that has demonstrated their expertise in addressing market challenges.

RATING SENSITIVITIES

CONTINUED NEGATIVE ARBITRAGE: Should prepayments continue to remain invested in low interest yielding instruments, there could be negative pressure on the class I and II bonds.

INABILITY TO MAINTAIN ASSET PARITY LEVELS: There could be negative pressure on the class I and II ratings if asset parity levels fall below their respective requirements.

CREDIT PROFILE

The affirmation on the class I and II bonds reflects the credit quality of the underlying collateral, the credit enhancement afforded by the debt subordination structure, and current asset parity ratios. Additionally, the class I and II bonds have minimum indenture asset requirements of 111.5% and 102%, respectively, directing revenues to be used to call bonds of that class prior to paying debt service of the next junior class. As of Dec. 31, 2014, the class I and II bonds had asset parity levels of 117% and 107%, respectively. As of Dec. 31, 2014, the underlying loan portfolio had a delinquency (60+ days) of 4.3%. Concerns over loan losses are mitigated by the insurance on the loan portfolio which is currently 74.4% FHA-insured, 20.7% RD-insured, and 4.4% VA-insured.

Credit concerns for the program are its negative net position and weak profitability ratios. As of fiscal year 2014, the program had a net position of negative $567 thousand and a net interest spread of negative 8.9%. These negative factors are primarily attributed to the program's asset composition which is made up of approximately 35% cash and investments and 65% of mortgage loans. As mortgages prepay, proceeds are reinvested in highly-rated, low interest yielding instruments which has resulted in negative arbitrage within the program. However, based on discussions with IHFA management, Fitch anticipates this issue will be resolved in the near future which is reflected in the Stable Outlook.

Additionally, Fitch is withdrawing the rating on the 2013A bonds because they were never sold.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', (June 16, 2014);

--'State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria', (July 25, 2013).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712476

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984009

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Fitch Ratings

Primary Analyst

Ryan J. Pami
Associate Director

+1-212-908-0803

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Charles Giordano
Senior Director

+1-212-908-0607

or

Committee Chairperson

Maura McGuigan
Senior Director

+1-212-908-0591

or

Media Relations

Sandro Scenga
+1-212-908-0278

New York

[email protected]

Source: Fitch Ratings