OREANDA-NEWS. Fitch Ratings has affirmed the 'AA+' rating on the following Florida Housing Finance Corporation's (FHFC) homeowner mortgage revenue bonds issued under the 1995 master indenture: 2006 series 2 through 6; 2007 series 1 through 6; 2008 series 1 through 4; 2009 series 1 and 2; and 2011 series 1 and 2. Fitch maintains the Positive Rating Outlook on all series of bonds.

SECURITY

The bonds are a limited obligation of the issuer, payable solely from the assets and revenues secured under the trust indenture. The assets pledged are primarily mortgage backed securities (MBS) and whole loans.

KEY RATING DRIVERS

STRENGTH OF PORTFOLIO: As of Jan. 31, 2015, the single-family portfolio consisted of 84% Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) mortgage-backed securities (MBS). Ginnie Mae obligations are unconditionally guaranteed by the U.S. government and the rating is solely a function of the U.S. government's sovereign rating. The ratings of Fannie Mae and Freddie Mac are currently directly linked to the U.S. sovereign rating. The U.S. government sovereign rating is 'AAA', Stable Outlook.

STRONG ASSET-TO-DEBT RATIO: The program has a current asset parity ratio of 117% based on consolidated cash flows, which is an improvement from 110% in 2014, supporting the continuation of the Positive Outlook. The indenture requires maintaining a parity ratio of 102% and excess assets could be removed from the program as long as this ratio is met.

HIGHLY SEASONED LOANS: All of the loans in the whole loan portfolio are highly seasoned; however, delinquency rates on the whole loans are almost double state delinquency rate averages. Mitigating the high delinquency rates is the fact that 67% of the whole loans carry federal insurance.

POTENTIAL CHANGE OF PORTFOLIO: Over the past several years, the percentage of whole loans to total assets in the indenture increased as existing MBS have prepaid or been sold faster than new MBS have been added. If this pattern continues, it could change the portfolio composition and alter the program's risk profile. FHFC also has the ability to add new whole loans to the portfolio, though has not done so since 2002.

RATING SENSITIVITIES
MBS TO BONDS RATIO: Changes in the asset mix of the loan portfolio which secures the bonds affect credit quality. The percentage of MBS has declined relative to whole loans from a high of 91% in 2011 to the current level of 84%. If the amount of MBS in the indenture were to equal or exceed the amount of bonds outstanding based on audited financial statements, this would likely trigger positive rating action. If the portfolio composition changes to result in a significantly larger percentage of whole loans, this could put negative pressure on the rating.

CREDIT PROFILE

The single-family program exhibits strong over-collateralization. The most current consolidated cash flows run in January 2016 (based on Dec. 31, 2014 audited financials with adjustments for recent bond issuances), illustrate a minimum asset parity ratio of 117% under all prepayment stress scenarios.

In addition to MBS and whole loans, the program periodically has funds held in revenue and redemption accounts invested primarily in the Florida state treasury fund. The FHFC maintains the ability to remove funds from the program if the asset parity requirement of 102% is met.

Credit concerns are related to the recent decrease in MBS as a percentage of the total portfolio. The decline in the MBS percentage is partially due to rapid MBS prepayments, as well as to some MBS being sold in order to redeem bonds in the program. This concern is mitigated by the strong asset parity ratio as well as the seasoning of the whole loan portfolio and the fact that 67% of the whole loans are federally insured, minimizing potential losses despite delinquency rates that are significantly above state averages.