Fitch Rates Maryland CDA’s Residential Revenue Bonds 2015 Series A-B ‘AA’; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a long-term rating of 'AA' to the following Maryland Community Development Administration (MCDA, the Administration) residential revenue bonds (RRB):

--Approximately $24.4 MM, 2015 series A;

--Approximately $67.2 MM, 2015 series B.

Additionally, Fitch affirms the 'AA' rating on approximately $1.6 billion in RRB (see full list at the end of this release).

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the issuer, payable from the revenues and assets pledged under the bond resolution.

KEY RATING DRIVERS

SUFFICIENT OVERCOLLATERALIZATION: The RRB program has demonstrated sufficient overcollateralization, even when Fitch stress scenarios are assumed. The cash flow projections, which incorporated various prepayment speeds and a loan loss assumption, showed a minimum 111% asset parity for the remaining term of the bonds.

PRESENCE OF GOVERNMENT INSURANCE: The loan portfolio is composed of 42% government-guaranteed loans (insured with 38% FHA, 2% VA, or 2% RD) and 8% of the portfolio is insured through CDA's insurance program (Maryland Housing Fund [MHF]). The remaining portfolio is made up of 48% private mortgage insurance (PMI) loans and 2% uninsured loans.

STRONG MANAGEMENT OVERSIGHT: MCDA has a well-tenured management team, which has a long and successful history of administering single family programs and continues to maintain the credit quality of the program by not diverting the excess collateral of the program.

MORTGAGES HIGHLY CONCENTRATED: Approximately 46% of the underlying mortgages are concentrated in, and around, the city of Baltimore.

HIGH DELINQUENCY RATE: The delinquency rate (60+ days) of the portfolio at 10.4%, although improving, is viewed as a credit weakness.

RATING SENSITIVITIES

REDUCTION OF EXCESS ASSETS: Current asset parity of over 111% provides enough excess assets to withstand 'AA' stress scenarios. Removal of those excess assets could result in negative rating pressure.

LOAN DELINQUENCIES: Delinquency (60+) levels over 10% are a credit weakness. If delinquencies increase, an increase in the loan loss assumptions may result in a need for MCDA to provide additional overcollateralization to maintain the rating.

CREDIT PROFILE

The 2015 series A and B bonds are the 107th and 108th series of bonds to be issued under a general bond resolution adopted in August 1997 and amended in July 2005. The bonds are on parity with all the bonds issued previously under the RRB resolution. The 2015 series will be used to purchase mortgage-backed securities, purchase refinance loans and to refund older debt obligations under this indenture. As of July 1, 2015, there are 42 series of bonds outstanding totaling $1.56 billion.

As of June 30, 2015, the underlying mortgage portfolio consisted of 11,253 mortgage loans totaling an outstanding principal amount of $ 1.3 billion. This is a decrease from last year when the portfolio had over $1.5 billion in mortgage loans, but is still much higher in comparison to the $992.4 million in mortgages that were in the portfolio in 2006. As of June 30, 2015, the underlying loan portfolio had delinquencies of over 10% which is lower than a year ago when it was over 13%. In addition to high delinquencies, portfolio concentration is heavily focused in and around the city of Baltimore, which accounts for approximately 46% of the underlying mortgage pool.

While the portfolio has high delinquencies and geographic concentration, the program's high overcollateralization, management oversight, and the presence of government-backed insurance mitigate concerns over potential losses. The cash flow projections, which incorporated various prepayment speeds and a high loan loss assumption stressed at the 'AA' level, had a minimum asset parity of 111% over the life of the bonds under both the 20% and 500% prepayment speed cash flow scenarios.

The program's underlying mortgage loans are 42% government-insured loans (FHA, VA, and RD) and 8% MHF insured. Of the remaining 50%, 48% is insured by various private mortgage insurers while 2% is uninsured. MCDA is currently not underwriting new loans insured with private mortgage insurers; however, the Administration reserves the right to continue to do so in the future. Fitch does not currently express an opinion on any PMI providers and views the presence of PMI on a loan as adding no additional credit strength.

Fitch views MCDA's management staff overseeing the program as a credit positive to the bonds. The Administration has a well-tenured management team that has a successful history administering single family programs and has shown dedication to the credit quality of the program. In addition to the assets directly in the RRB program, management has added a collateral reserve fund and a general bond reserve to add credit support. As of June 30, 2015, the collateral reserve fund held loans and investments with an outstanding principal balance of $130 million. Other investment obligations in the amount of $305 million combine to support the bonds in the RRB program. While the 111% asset parity includes both the collateral reserve fund and the general bond reserve fund, it is important to note that MCDA has the right to withdraw money from the collateral reserve fund and general bond reserve fund as these funds are not directly pledged.

In addition, Fitch affirms the following ratings:

--$397.3 million MCDA residential revenue bonds, 2006 series A, B, E, G, H, I, J, K, L, O, P, & S at 'AA';

--$570.1 million MCDA residential revenue bonds, 2007 series A, B, C, D, E, F, G, H, I, J, K, & M at 'AA';

--$89.6 million MCDA residential revenue bonds, 2008 series A, B, D, & E at 'AA';

--$90.9 million MDCDA residential revenue bonds, 2009 series A, B & C at 'AA';

--$23.3 million MCDA residential revenue bonds, 2010 series A at 'AA';

--$74.3 million MCDA residential revenue bonds, 2011 series A & B at 'AA';

--$75.4 million MCDA residential revenue bonds, 2012 series A & B at 'AA';

--$235.8 million MCDA residential revenue bonds, 2014 series A, B, C, D, E & F at 'AA'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

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

State Housing Financing Agencies: Single Family Housing Criteria (pub. 01 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867779

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993196

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993196

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Source: Fitch Ratings