Fitch Rates Florida HFC's $47MM Mortgage Revenue Bonds 'AA'

Business Wire, August 23, 2004

NEW YORK -- Fitch Ratings assigns an 'AA' rating to Florida Housing Finance Corporation's (the corporation) $47 million homeowner mortgage revenue bonds, 2004 series 3 and 4. The bonds are expected to be sold through negotiation this week by a UBS Financial Services-led syndicate. Fitch also affirms the 'AA' rating on the $606 million outstanding homeowner mortgage revenue bonds and the 'AA/F1+' rating on the $36 million homeowner mortgage revenue bonds, 2003 series 4, prior to consideration of any bond insurance.

The current offering is the fourteenth sale of bonds issued under a flexible master trust indenture adopted by the corporation in 1995. Net proceeds from the 2004 series 3 and 4 bonds will be used for the redemption of outstanding single family mortgage revenue bonds from an earlier indenture. Existing mortgage-backed securities (MBS) from this refunding will be transferred to the homeowner mortgage revenue bonds 2004 series 3 and 4 issuance. The long-term rating reflects the current portfolio -- the majority of which consists of single family whole loan mortgages as well as a growing portion of mortgage-backed securities (MBS), the expected transfer of additional MBS, sufficient levels of mortgage insurance on whole loans available to protect against potential loan losses, adequate reserve levels and liquidity, and the corporation's satisfactory program oversight abilities.

The master trust indenture adopted by the corporation in 1995 establishes the bonds' security lien, new issuance requirements, flow of funds, and minimal loan requirements. Specific program restrictions are incorporated into supplemental indentures at the time of each bond sale. As of July 1, 2004, $521 million in loans and MBS were outstanding, up from $512 million as of Dec. 31, 2003. Nearly one-half (49.1%) of the outstanding whole loan balance (which excludes MBS) is Federal Housing Administration (FHA)-insured, 24.4% is privately insured, 11% is guaranteed by the U.S. Department of Veterans Affairs (VA), 5.1% is guaranteed by the U.S. Department of Agriculture, through its Rural Development Guaranteed Rural Housing Program (RD), and the remainder was uninsured.

Almost all whole loans are covered by mortgage pool insurance under separate policies with varying levels of coverage and constraints. The pool policies include advance claim riders and deductible provisions. The whole loans are performing satisfactorily -- 6.1% of the loans are 60 days or more delinquent or in foreclosure as of July 1, 2004. Recently, a level four hurricane caused a yet to be determined amount of damage to properties in the state of Florida. At this time, it is uncertain as to the amount and extent of the damage and what effect it may have on the portfolio. Accordingly, Fitch will continue to monitor the credit implications, if any, that the damage may have on the mortgage revenue bond program.

All prior bonds used to purchase whole loans, require funding a mortgage reserve (2%) and debt service reserve (3%) fund. The 2004 series 3 and 4 bonds do not require funding either reserve fund due to the full and timely guarantee of Ginnie Mae, Fannie Mae, and Freddie Mac securities that will be transferred into the issuance. Reserves for several bond series have been funded in the form of non-callable surety bonds provided by the respective bond insurer. As of Dec. 31, 2003, the balances in the mortgage and debt service reserve funds were $8.1 million and $12.3 million, respectively, including the stated amounts of surety policies.

During the fiscal year ended Dec. 31, 2003, the program's net interest income grew to $4.7 million from $3.3 million in fiscal year 2002. Accordingly, net interest spread (net interest income divided by total interest income) rose to 15.7% during fiscal 2003, compared with 12.2% and 15.5% the prior fiscal years, respectively. The program's fiscal 2003 financial position remained satisfactory. Net assets increased to $36.9 million benefiting from a $3.7 million transfer to the program.