APPROXIMATELY $460 MILLION IN DEBT AFFECTED
Montana Board of Housing
NEW YORK, Sep 27, 2010 -- Moody's Investors Service has affirmed the Aa1 rating of the approximately $460
million of outstanding Montana Board of Housing ("MBOH") Single Family
Mortgage Bonds issued under the 1977 Indenture. The outlook remains stable. The
Aa1 rating reflects the strong financial position of the program, the existing
and expected loan composition, and the bond structure.
LEGAL SECURITY: The bonds are special obligations of MBOH. The bonds are payable
from the revenues and assets pledged under the 1977 Indenture, which consists
primarily of interest in first lien mortgages, investments and reserves held
with the trustee. The bonds are also a general obligation of the Board (rated
A2). Payment is on parity with $459,630,000 million (6/30/2010) in Single
Family Mortgage Bonds. There is also a Debt Service Reserve Requirement of 3% of
bonds outstanding which has been met.
INTEREST RATE DERIVATIVES: The 1977 Indenture does not have any variable rate
debt or hedging instruments.
--Solid program asset-to-debt ratio ("PADR") as of June 30, 2009 of
--Debt service reserves in the amount of 3% of bonds outstanding.
--A strong loan portfolio composition that is primarily FHA (50%) and VA (11%)
--Rating Certificate affirming outstanding bond rating required to issue
--The portion of loans which are FHA insured has declined.
--The size of the indenture is relatively small. It is typical for the program's
PADR to notably decline when bonds are sold, then increase over time after the
new mortgages increase profitability.
LOAN PORTFOLIO CHARACTERISTICS AND PERFORMANCE: STRONG PORTFOLIO COMPOSITION DUE
TO SUBSTANTIAL GOVERNMENT INSURANCE OF MORTGAGES
The combination of mortgage insurance and over collateralization of
program assets to liabilities should protect the bond program from losses
arising from potential mortgage delinquencies and defaults. As of June 30, 2010,
there were 4,988 loans with a balance of approximately $460 million outstanding
under the program. Of that balance, 50% was insured by FHA, 11% by VA, 20% by
USDA/RHS, 15% was privately insured [11% by Genworth (Baa2, Negative) and 4% by
MGIC (Ba3, Positive)] and 4% uninsured with a loan to value below 80%. The
portion of loans which are FHA insured has declined over time with PMI insured
loans increasing. PMI insurance provides minimum coverage which declines as the
loan to value of the loan decreases, and is, in general, fairly deep, with 100%
LTV loans coverage at 40%, 95% LTV at 37% etc. This risk to the program from
shift to PMI insurance is mitigated by the deep level of PMI coverage as well as
the strong asset to debt ratio of the program.
The mortgage loan portfolio performance has been strong with delinquencies of
60-89 days equal to 0.76% and loans 90+ days delinquent equal to 1.16% as June
30, 2010. Foreclosures are equal to 0.76%. This compares favorably to state and
national averages of 0.96%, 1.42% and 2.07%, 4.73% for 60 day and 90
day respectively, as of June 30, 2010 (as reported by the Mortgage Bankers
Association). The top three mortgage loan vintages are 2007 (32%), 2006 (27%)
and prior to 2005 (21%).
FINANCIAL PERFORMANCE: PROGRAM REMAINS PROFITABLE AND PADR IS RELATIVELY STABLE
The program's financial strength is reflected in its asset to debt ratio of
approximately 1.11x as of 6/30/09 audited financial statements. The 2009 PADR is
an improvement from a low of 1.09x in 2007 but remains slightly below the 1.13x
achieved in 2006. The indenture remains profitable with net revenues being 6.01%
of operating revenues. This compares less favorably to last year's level
of 14.55%. The decline is due primarily to cash and investments being a larger
percentage of total assets, which hurts profitably as they generate less revenue
than mortgages especially in a low interest rate environment.
CASH FLOW PROJECTIONS: FULL AND TIMELY PAYMENT DEMONSTRATED UNDER ALL PREPAYMENT
Cash flows were run on a consolidated basis and included 0%, 100%, 475% PSA
prepayment speeds as well as a 100% Super Sinker Stress Test. All investment
earnings from money market funds assumed a stressful 0% for the life of the
program as per Moody's guidelines. Based on these projections, Moody's
believes the 1977 Indenture will continue to generate enough revenue from its
loans and investments to fully meet all existing debt obligations in a
timely manner under all stressful prepayment scenarios.
The stable outlook is based upon continued profitability and a strong portfolio
What could change the rating - UP
Continued PADR growth while maintaining current loan portfolio
characteristics or a substantial increase in the size of the indenture (while
maintaining loan and financial characteristics).
What could change the rating - DOWN
Significant deterioration in portfolio performance and erosion of the asset to
KEY STATISTICS (as of June 30, 2010 unless otherwise noted):
Program asset to debt ratio (as of June 30, 2009): 1.11x
Fund balance as a % of bonds outstanding (as of June 30, 2009): 10.75%
Net operating revenue as a percent of total operating revenue (as of June 30,
Delinquency statistics: 60 days - 0.76%; 90 days - 1.16%; loans in foreclosure
Portfolio composition: FHA - 49.51%; VA - 10.91%; USDA/RHS - 20.11%; privately
insured - 14.76%; uninsured - 4.31%; FNMA MBS- 0.40%
Loan vintages: prior to 2005- 21.06%; 2005 - 9.67%; 2006- 26.74%; 2007- 32.70%;
2008- 8.38%; 2009- 0.21%; 2010- 1.24%
Type of obligation: Special obligations
Cash flow structure: Open loop; 1.02x PADR release test
Mortgage loans outstanding: $441 million
Bonds outstanding: $460 million
LAST RATING ACTION & METHODOLOGY
The last rating action with respect to Montana Board of Housing was on December
08, 2009 when a Aa3 rating was assigned to the Single Family Homeownership
Bonds. The Single Family Homeownership Bonds were issued pursuant to the New
Issue Bond Program ("NIBP") established jointly by Fannie Mae and
Freddie Mac (the "GSEs"), the Federal Housing Finance Agency, and the
U.S. Department of the Treasury ("Treasury") under which the Treasury
provides funding for bond issuance by HFAs.
The principal methodology used in rating the Single Family Mortgage Bonds (1977
Indenture) was "Moody's Approach for Single Family, Whole-Loan Housing
Programs," published in May 1999 and available on www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process of rating
this issuer can also be found in the Rating Methodologies sub-directory on
MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
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Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS THE Aa1 RATING OF MONTANA BOARD OF HOUSING SINGLE FAMILY SINGLE FAMILY MORTGAGE BONDS, 1977 INDENTURE; OUTLOOK REMAINS STABLE
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