2009-12-08 23:10:38 -

Fitch Ratings has assigned the following ratings to Utah Housing Corporation's (UHC or the corporation) single-family mortgage bonds, 2009 series C and D.

--$51.7 million 2009 C (class I) 'AAA';

--$4.7 million 2009 C (class II) 'AA';

--$3.6 million 2009 C (class III) 'AA-';

--$125.3 million 2009 D (class IV) (Escrow Bonds) 'AAA'.

The Rating Outlook for the class I, class II and class IV bonds is Stable. Fitch has removed the class III bonds (secured by the corporation's general obligation pledge) from Rating Watch Negative and placed the bonds on Rating Watch Evolving. The Rating Watch Evolving is based on the corporation's plan which is underway to terminate existing liquidity facilities from various financial institutions backing variable rate

demand bonds and replace them with alternative liquidity facilities from Fannie Mae and Federal Home Loan Mortgage Corporation (Freddie Mac) no later than Dec. 30, 2009. Once executed, this plan will resolve the corporation's current bank bond situation which has required it to make accelerated principal amortization payments for certain corporation bonds.

The $60 million 2009C bonds will be the 1st offering issued under a new general indenture of trust dated Dec. 1, 2009 (the general indenture).

The 2009C single-family mortgage bonds are being issued under a supplemental indenture that pledges mortgage revenues, investment earnings, reserves, and other trust funds to secure the bonds.
Additionally, the class III bonds are secured by the corporation's general obligation (GO) pledge for payments of scheduled interest and principal at final maturity. All of the series C bonds under the new general indenture will be in the fixed-rate mode.

The $125 million 2009 D Escrow Bonds are being issued under a Series Indenture dated Dec. 1, 2009 and are class IV bonds. The bond proceeds will initially be held in an escrow account, and the bonds will be secured solely by amounts on deposit in the escrow account and investment earnings from the account. UHC may cause funds to be released from the escrow account up to three times during 2010 (or an earlier date selected by UHC). The bonds will initially bear interest at a short-term rate but will be converted to fixed rate once released from escrow. Per the 2009 Series D Indenture, the bonds shall be convertible into class I Bonds on a release date. Any bonds with respect to which a release date has not occurred prior to Jan. 1, 2011 are subject to mandatory redemption on Feb. 1, 2011 (or earlier date selected by UHC).

Both series of bonds are expected to close on or about Dec. 23, 2009.

Bond proceeds of the 2009 series C will provide approximately $56.2 million in available lendable funds to continue the corporation's single-family, first-time homebuyer mortgage purchase program. The new program indenture requires a minimum of 90% of the loans to be insured by the Federal Housing Administration (FHA), with the remaining 10% to be guaranteed by the Department of Veterans Affairs (VA) or be originated as an uninsured mortgage loan with an initial loan to value of 80% or less.

Once the $125 million 2009 series D bonds are released from escrow, the proceeds will also be used to continue the corporation's single-family, first-time homebuyer mortgage purchase program and will follow the same program indenture requirements for FHA, VA and Uninsured loans.

The 'AAA' and 'AA' ratings on the class I and II bonds reflect the credit quality of the trust estate's collateral, the adequacy of projected revenues to pay debt service, the credit enhancement provided by the 15% debt subordination at time of issuance underlying the class I bonds, and the 5% debt subordination underlying the class II bonds. In addition, the class I and II bonds have minimum asset requirements of 111.5% and 102% (net of loan loss assumptions) respectively, directing revenues to be used to call bonds of that class prior to paying debt service of the next junior class.

While the portfolio will be made up of newly originated, unseasoned loans, the high expected level of FHA insured loans and the history of UHC's program management should provide strength to the program. Strong underwriting guidelines and the incorporation of a 1% loan evaporation loss in the cash flows over the first seven years mitigate loan risk.

Additional risks center on the fact that upon maturity of the class III bonds in 2029, the class II bonds may be exposed to any potential program losses beyond available excess funds.

While the class III bonds are secured by the assets and revenues of the trust indenture, the rating reflects the 'AA-' rating assigned to the creditworthiness of the corporation's GO pledge. The GO rating is based on favorable overall financial and portfolio performances, a moderate debt-to-equity ratio when compared with other state housing finance agencies, and management's expertise in carrying out the corporation's public purpose mandate while protecting its long-term credit quality.

The 'AAA' rating on the 2009 series D class IV bonds reflects the legal document provisions for the anticipated single family program upon release of the escrow bonds. The Series Indenture requires that, once funds are released from escrow, mortgage loans be financed meeting the General Indenture requirements. In addition, the rating accounts for UHC's successful history of administering its single family programs.

Fitch will review the bond documents, stressed cash flow runs, and other pertinent documentation each time funds are released from the escrow account.

The 2009 indenture was created, in part, so that UHC can participate in the New Issue Bond Program (NIBP) established by the United States Treasury with the assistance of Fannie Mae and Freddie Mac. Under the terms of the program, the Treasury will purchase up to 60% of the bonds sold by state and local housing finance agencies with the remaining 40% to be sold to private investors as Market Bonds. The interest rate for bonds sold to the Treasury will be based on the investment earnings of the escrow fund for the pre-conversion period, and for the remainder of the period, will be based on the 10-year Constant Maturity Treasury (CMT) plus a defined spread based on rating category of bond program.
The remaining bonds will be priced based on the prevailing market.

The Treasury's authority to complete these transactions under the Housing Economic Recovery Act of 2008 expires on Dec. 31, 2009, and therefore all NIBP related transactions must be completed prior to year end. The program allows issuers to close bond financings prior to Dec.

31, 2009 and place funds in escrow until they are converted to long-term bonds, in conjunction with the sale of Market Bonds, over the course of 2010.

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Fitch Ratings, New YorkMaura McGuigan, 212-908-0591Eric V.
Espino, 212-908-0574orMedia Relations:Cindy Stoller,
212-908-0526Email: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com