S&P: Rhode Island Housing & Mortgage Finance Corp.'s Series 68A-C Homeowner Opportunity Bonds Rated 'AA+'
The ratings reflect our opinion of:Cash flow runs indicating very strong reserve levels to cover loan losses throughout the life of the bonds, Strong performance of the underlying mortgage loan collateral, andHigh credit quality of investments under the resolution. These strengths are partially offset by unrated mortgage insurance providers for approximately 37% of the mortgage portfolio.
The series 68-A, 68-B, and 68-C bonds will be issued at a fixed rate. Proceeds from the issuance of these bonds will be used to refund previously issued bonds, and to issue about $40 million in new mortgage loans.
Cash flows run under a variety of origination and prepayment speeds indicate that there will be sufficient assets and revenues to pay debt service and expenses on the bonds under several stress scenarios. Depression cash flow statements provided by the issuer indicate that initial the asset-to-liability ratio is 122.38% with projected excess assets of $136.9 million as of July 1, 2016. The asset-to-liability ratio does not fall below the initial parity level throughout the life of the bonds. The cash flow statements demonstrate the ability of the resolution to absorb credit losses of about 11%, in excess of S&P Global Ratings' 'AA' stress loss coverage estimate of 10.3%, while being able to make timely debt service payments due on the bonds through maturity.
We assessed the resolution's coverage of credit losses and liquidity shortfalls associated with projected loan defaults as well as the amount of foreclosure loss that mortgage insurers within a single-family loan portfolio will likely absorb. Loan loss protection is provided by reserves and excesses under the resolution including a mortgage lenders reserve fund. To date, the resolution's debt service reserve fund has never been used to make debt service payments on the bonds. Most of the resolution's $16.2 million reserve fund is invested in direct obligations of the U. S. government, and permitted investments include securities rated 'AA-' or above. About $2.8 of the reserve fund is invested in a guaranteed investment contract with Bayerische Landesbank Girozentrale, an unrated provider.
The stable outlook reflects our expectation that the resolution's equity and liquidity, as evidenced by cash flow projections, are sufficient to withstand our current loss coverage assumptions. Given the corporation's capability to manage its loan portfolio, we expect the rating and outlook to remain stable in the medium term. However, if the resolution's loan performance begins to trend downward, we could lower the rating on the bonds issued under the resolution. S&P Global Ratings will continue to monitor the resolution's loan performance and adjust its rating accordingly.