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Fitch Affirms Florida Housing Finance Corp's Assurance Fund at 'A+'; Outlook Steady


Fitch Ratings affirms the rating on Florida Housing Finance Corporation's (FHFC) cost effective real estate warranty fund (GF) at 'A+'. The Rating Outlook is Stable.Fitch verifies the following FHFC bonds supported by the GF:--$10,290,000 Broward County Housing Finance Authority (FL) (Pembroke Villas Project) multifamily housing profits bonds series 2001A;--$10,425,000 Florida Housing Finance Corp. (FL) (Peacock Run Apartments) multifamily mortgage profits bonds series 2002 H-1 & H-2; &

H-2; --$5,875,000 Florida Housing Finance Corp. (FL) (Woods of Vero Beach Apartments Project) real estate income bonds series 1999N-1;--$5,655,000 Lee County Housing Finance Authority (FL) (Andros Isle ApartmentsProject) multifamily real estate revenue bonds series 2001 A &B; &B; --$11,900,000 Miami-Dade County Housing Finance Authority (FL) (Alhambra Cove Apartments) multifamily home loan income bonds series 2003-4A;

--$10,995,000 Miami-Dade County Housing Finance Authority (FL) (Golden Lakes Apartments Project) multi-family home loan revenue bonds series 1997 cls A&B;
--$7,470,000 Pasco County Housing Finance Authority (FL) (Pasco Woods Apartments Project) multifamily real estate income bonds series 1999A.

The Rating Outlook on all of the bonds is Stable.SECURITY The security for the rating is the GF's corpus, which is available for claim payments on the guaranteed portfolio of multifamily mortgage loans. The guarantee fund also takes advantage of limited continuous state support through legislation that permits drawing on a part of future documentary stamp taxes designated to the State Housing Trust Fund (SHTF).


SECRET RATING DRIVERS LOW RISK-TO-CAPITAL RATIO: The affirmation reflects that the GF's risk-to-capital ratio, now at its most affordable level, enhanced to 0.6:1 in 2016 from 1.7:1 in 2014. Fitch elements into its rating that the FHFC board-directed risk-to-capital level is 5:1, which leaves the potential for the risk-to-capital to increase to a greater level.NO OUTSTANDING DEBT: The bonds that initially moneyed the corpus and the Citibank loan that later on moneyed part of the corpus was redeemed and repaid, and there is no longer any outstanding debt associated with the GF.


SMALL PORTFOLIO IN RUN-OFF MODE: The GF is currently in run-off mode with only nine tasks in the portfolio, which has actually been factored into the score. At the present risk-to-capital ratio of less than 1:1, Fitch is not examining the portfolio on a project-by-project basis. However, if the risk-to-capital were to increase, Fitch would evaluate each job to reflect the risk intrinsic in a small portfolio, consisting of any unfavorable choice of continuing to be loans in the portfolio and developer concentration.HISTORICAL PERFORMANCE: After loan defaults in prior years, the GF recovered substantial quantities for the properties and real losses were small. Currently the GF has no delinquencies or claims pending, and occupancy rates of the insured properties are general stable.


LIMITED STATE SUPPORT: The GF take advantage of limited possible state assistance through the fund's capability to replenish the corpus by making use of a quantity up to 50 % of the prior year's documentary stamp tax allocation to the SHTF.RATING SENSITIVITIES CAPITAL SUFFICIENCY: Should the reserve amounts decline due to withdrawal of corpus funds there might be unfavorable pressure on the rating. Fitch would need to review the portfolio on a project-by-project basis at greater risk-to-capital ratios in order to identify capital sufficiency.


The warranty fund was developed in 1992 by the Florida Legislature to supply credit improvement in order to allow the production of economical real estate in the State of Florida. It was at first capitalized with proceeds from an FHFC bond sale in 1993, and then later funded with a direct loan by Citibank. The bonds that funded the corpus have all been redeemed and the loan from Citibank was paid off in complete on Dec. 21, 2012.PORTFOLIO COMPOSITION The ensured portfolio, since Feb. 29, 2016, consisted of 9 irreversible loan warranties on individual multifamily properties aggregating $59 million of risk-in-force. This is a significant decline from 2-years prior when the 42 multifamily loan warranties accumulated $260 countless risk-in-force (as of April 15, 2014).The very first and second single-family mortgage pools originally guaranteed by the Guarantee Fund have been gotten rid of from the single household portfolio since Nov. 18, 2015.


The Guarantee Fund runs under a board-directed, however not required by statute, maximum 5:1 risk-to-capital ratio. The GF's risk-to-capital ratio, now at its lowest level, improved to 0.6:1 in 2016 from 1.7:1 in 2014. The net balance of the corpus is $97.9 million, all which is purchased the extremely liquid State Treasury Special Purpose Investment Accounts (SPIA). The SPIA is a unique investment program operated by the Florida State Treasury for Florida public entities.As of Jan. 31, 2016, the four-month typical occupancy rate for multifamily tasks in the portfolio was 95 %, an enhancement from 2-years prior when the rate was 92 %. Since 2005, no new warranties have actually been added to the portfolio. Furthermore, there are presently no advancements guaranteed by the fund undergoing construction, and the board has suspended issuance of future assurances.


4 of the impressive 9 multifamily home mortgages are ensured under the Department of Housing and Urban Development (HUD) Risk Sharing program. According to this agreement, HUD presumes 50 % of the Guarantee Program's post-construction obligation. For those developments, the warranty fund obligation is half of the total risk amount. Since Feb. 29, 2016, there was $19 million in danger quantity for the four warranties in the fund's portfolio under the Risk Sharing program.VERY LITTLE MULTIFAMILY LOSSES Claims associated with the multi-family guarantees have actually been minimal, and restricted to a 2-year period following the real estate recession of 2008. Throughout that duration, 8 claims were paid with recuperation rates varying from 66 % to 114 % and a net loss amount of $5.1 million. All of the claims were for properties with HUD risk-sharing contracts. For the risk-share properties, HUD makes the initial claim payments in full, then after the property has been disposed, the GF compensated HUD for its share of the claim amount plus interest.


POTENTIAL FOR ADVERSE SELECTION IN MULTIFAMILY PORTFOLIO Due to the availability of HUD and other refinancing alternatives over the previous numerous years, a lot of the properties that were economically able have refinanced from the GF portfolio, which has actually cut the total commitment quantity drastically over the previous four years.In many cases, it is the properties that were not in a financial position to refinance that now stay in the GF portfolio. Reducing this danger is the current risk-to-capital ratio. At the existing risk-to-capital ratio, it is not required to evaluate the portfolio on a project-by-project basis. However, if the risk-to-capital ratio were to enhance above 1:1, Fitch would evaluate each task to reflect the risk intrinsic in a little portfolio, including unfavorable choice of the remaining properties.


Given the small size of the staying portfolio, there is intrinsic geographical and developer concentration amongst the staying loans. One homeowner oversees advancements that aggregate 28 % of the GF portfolio's direct exposure. From a geographical point of view, 45 % of properties are in two counties in southeastern Florida: 28 % in Miami-Dade County and 17 % in Broward County. The current risk-to-capital ratio alleviates issue over the portfolio's concentration danger.


The warranty fund advantages from limited potential state assistance through legislation that enables for drawing on a portion of future documentary stamp taxes allocated to the SHTF. Transfers from the trust fund to the program might not surpass 50 % of the SHTF's prior year allotment, which was $68.5 million in the state's financial year ended June 30, 2015.The assurance fund has carried out progressively since 2010, however earnings is limited due to the absence of brand-new commitments in the portfolio. The GF's net position, however, was impacted by a $13.8 million transfer out of the program in fiscal 2014, resulting in a ($8.5) million change in net position.