Fitch Affirms SONYMA MIF Project Act at 'AA-' and SF Act at 'AA+'

Business Wire, June 25, 2004

NEW YORK -- Fitch Ratings affirms the insurer financial strength rating of the State of New York Mortgage Agency's (SONYMA) mortgage insurance fund's (MIF) project pool insurance account (project account) at 'AA-' and the single-family pool insurance account (single-family account) at 'AA '. The affirmation follows a final excess balance determination due by May each year that concluded there were $225 million in excess funds to be transferred from the MIF to the state for the period ended March 31, 2004. The affirmation reflects, after consideration of the transfer amount, the project's and single family account's strong risk-to-capital ratios, high asset quality, and liquidity of reserve fund investments, and substantial financial support from the state's mortgage recording tax surcharge receipts.

The MIF was created by the state in 1978 as a separate operating unit of SONYMA. Through the project account, the MIF insures first mortgages on multifamily housing, elderly housing, special needs facilities (SNFs), and, to a lesser extent, on elderly assisted living residences, cooperative housing, and retail and community service projects. Single-family primary insurance, as well as mortgage pool insurance for some of SONYMA's single-family bond issues, are written through the single-family account. By statute, each insurance account's reserve fund is required to be maintained separately at a minimum of 20% of the account's risk in force and commitments outstanding plus up to 100% of the insured liability for all policies that are potential claims. Effective in May 2001, the MIF's board further stipulated that all SNFs reserves equal a minimum of 40% of the risk amount. Reserve funds are invested in short- to medium-term U.S. government and agency securities.

The accounts' current risk-to-capital ratios are 2.6 times (x) and 3.0x for the project and single-family accounts, respectively. Actual insured risk to total available reserves historically has remained well below five to one in both insurance accounts as a result of the significant portion of outstanding commitments relative to each account's risk in force, as well as the ability to fully reserve against potential claims and accumulate some excess reserves.

The MIF derives revenues from investment earnings, fees, and premiums, as well as from the state mortgage recording tax surcharge. Surcharge receipts available to the fund, which totaled $112.1 million during the year-ended March 31, 2004, are deposited to the fund's special account and credited to the insurance accounts to satisfy reserve requirements for new policies and claim liabilities. Revenues, including surtax receipts and other earnings, in excess of each account's requirement for reserves or operating expenses can be retained in the respective account as retained earnings. Periodic proposals to redirect all or a portion of the MIF's share of surtax receipts are an ongoing concern.

Recently, a bill related to the surtax receipts was introduced to the New York State Assembly. The proposed bill authorizes the MIF to create a separate account as a source of credit support for the financing of the expansion and renovation of the Jacob Javits convention center in New York City. As proposed, the account would be funded from the state mortgage recording tax surcharge receipts up to a yet-to-be-determined required reserve amount. At this time, it is uncertain what form the final legislation will take and what effect, if any, it may have on the MIF's insurance accounts. Accordingly, Fitch will continue to monitor the bill's progress and comment on any credit implications an enacted bill may have on the MIF's insurance program.

As of March 31, 2004, the project account had $1.30 billion of risk covering 637 policies in force and an additional $354 million in commitments. Reserves assigned to this account totaled $651 million, which equals a risk-to-capital ratio of 2.6x when including all reserves and 3.5x excluding retained earnings. In addition to the low risk level relative to reserves, claims paid to date are moderate while delinquent loans are minor. The MIF has paid 35 final claims aggregating $84.2 million since the account's inception, less than 7% of the account's current risk amount. Approximately one-half of this claim amount covered one claim payment made in July 2003 for an SNF that had been fully reserved against prior to payment. Furthermore, the fund has paid approximately $1 million on four pending claims. Concerns continue to focus on the account's single-risk exposure to several large geriatric and acquired immune deficiency syndrome facilities, which, in turn, rely heavily on state Medicaid reimbursement payments; the portfolio's significant geographic concentration in New York City; and the account's broad legislatively defined public policy role.

The single-family account had $419 million of risk in force as of March 31, 2004. The account consists of 33 pool insurance policies covering 30,852 loans, with an aggregate outstanding mortgage amount of approximately $2.3 billion. The aggregate stop loss limit on these loans equals $323 million. The account also provides primary mortgage insurance to approximately 3,961 loans with an outstanding balance of $349 million and a risk amount of $96 million. Additionally, the account has reserves set aside for $19 million in primary insurance commitments. Account reserves equaled $146 million as of March 31, 2004, generating a risk-to-capital ratio of 3.0x. Excluding retained earnings, the risk-to-capital ratio equaled 4.2x. Both the pool and primary insurance portfolios are performing well and total claims paid to date ($19.7 million, 4% of the account's risk amount) have been fairly minor. Concerns include the geographic concentration of the portfolio and limited business scope of the account.