2008-08-01 05:52:01 -

- Fitch Ratings has updated its state housing finance agencies (SHFAs) statistical information report to include fiscal-year (FY) 2007 financial results for 51 SHFAs. For the first time, Fitch has included information on mortgage-backed securities (MBS) held by SHFAs as part of their programmatic functions for fiscal 2007. Fitch found that 30% of the SHFAs held MBS's in their portfolios.

Fitch will continue to include this information going forward and will begin building a history with each published report. Starting with the January 2008 report, and included in this report, Fitch has also calculated a 10-year average of certain ratios to highlight financial trends for each agency.

Fiscal 2007 results for the 51 SHFAs mirrored that of the 33 SHFAs detailed in the January 2008 report. Total assets and total debt continued to grow, with 11.1% and 11.9% increases for each, respectively. This marks the third year of growth in both assets and debt, and Fitch expects this trend to continue as a result of the Housing and Economic Recovery Act of 2008. Contributing to the growth in assets may be the increased demand for the SHFA product due to lower mortgage rates resulting from decreased costs of issuance under the legislation's Alternative Minimum Tax (AMT) relief for housing bonds. Fitch believes that the Act's change in Federal Housing Administration (FHA) loan limits, increase in the low income housing tax credit cap, and the temporary mortgage revenue bond refinancing authority may also result in increased demand for SHFA product. Under the new legislation, SHFAs have greater ability to respond to the potential increase in demand due to the $11 billion tax-exempt housing bond cap increase, all of which may continue to further growth in the SHFA asset and debt portfolios.

The percentage of variable-rate debt outstanding declined slightly for the 51 SHFAs to 33.2% in fiscal 2007 from 34.8% in fiscal 2006. Although the dollar amount of variable-rate debt was slightly higher, as a percentage it was lower due to the larger increase in total debt outstanding. This is the first fiscal year of declines in the percentage of variable-rate debt, following a period of increases started in fiscal 2000. According to Fitch's fiscal 2007 variable-rate debt survey, for 22 of the 51 SHFAs the amount of variable-rate debt relative to total debt outstanding increased, for 15 the amount decreased, for five it remained the same, and the remaining nine did not issue variable-rate debt.

Overall during fiscal 2007, the 51 SHFAs performed well. Despite the increased issuance of debt, the median debt-to-equity ratio remained constant at 5.7x, the same level as in fiscal 2006 and lower than the 7.0x median of the states' 10-year averages. On the profitability side, the SHFAs showed an improvement in fiscal 2007. The median net interest spread for the 51 agencies increased to 26% in fiscal 2007 (the highest median since Fitch began publishing the report) from 22.6% in fiscal 2006, with 36 agencies showing improvement, 14 declining, and one remaining flat. While the January report produced by Fitch highlighted 33 SHFAs, the inclusion of the remaining 18 SHFAs for which Fitch has financial information indicates similar financial performance measures, given that SHFAs continued to see a decrease in competition and were able to achieve close to full spread on mortgage rates. Additionally, with short-term investment rates close to tax-exempt bond rates and loan origination occurring rapidly, the SHFAs were also able to avoid significant losses from negative arbitrage while continuing to build their mortgage portfolios.

The report titled 'State Housing Finance Agencies: Statistical Information' dated Jul. 31, 2008, is available on the Fitch Ratings web site at www.fitchratings.com.

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Fitch Ratings, New York
Charles Giordano, 212-908-0607
Kasia Reed, 212-908-0389
Eric Espino, 212-908-0574
Sandro Scenga, 212-908-0278 (Media Relations)