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Rating Update:

MOODY'S CONFIRMS Baa3 RATING OF NEW MEXICO MORTGAGE FINANCE AUTHORITY TAX EXEMPT SECOND MORTGAGE PROGRAM BONDS SERIES 2000A AND REMOVES FROM WATCHLIST; OUTLOOK IS NEGATIVE

20 Jan 2011

APPROXIMATELY $70,200 OF OUTSTANDING DEBT AFFECTED

New Mexico Mortgage Finance Authority
Housing
NM

Opinion

NEW YORK, Jan 20, 2011 -- Moody's has confirmed the Baa3 rating of New Mexico Mortgage Finance Authority Second Mortgage Tax Exempt Program Bonds Series 2000A, affecting approximately $70,200 of outstanding debt. The rating action removes the transaction from Watchlist for Possible Downgrade. The rating is based on the program's high asset to debt ratio, including cash held under the indenture, and cash flow analysis indicating the program's ability to withstand a high level of loan losses. The negative outlook is based on continued concern about high levels of loan delinquencies and some uncertainty about the potential impact of withdrawals from the costs of issuance fund comprising a significant portion of program assets.

The transaction is secured by a portfolio of second mortgage loans which provided down payment and closing cost assistance to eligible single family homebuyers.

STRENGTHS

* Ability to withstand significant loan defaults

* Strong asset to debt ratio as indicated by the NM MFA audit

WEAKNESSES

* Relatively high level of loan delinquencies and defaults

RATING RATIONALE

The transaction was originally placed on Watchlist for Possible Downgrade on November 18, 2010 due to the loan portfolio's higher-than-expected foreclosure rate, which was approximately 23% of the total number of loans since the program's inception. Since then, Moody's has received additional information which demonstrates that the program can withstand significant additional levels of loan defaults without impairing its ability to meet all debt service requirements.

The program maintains a high asset-to-debt ratio with significant cash balances available to cover debt service. As of the 9/30/2009 NM MFA audit, the asset to debt ratio is very high with $224,000 of net assets restricted for debt service, including a costs of issuance (COI) fund, and $106,000 of bonds payable. More current financial data from the trustee continues to demonstrate a high asset to debt ratio with cash balances exceeding bonds outstanding. The trustee reports that as of 11/1/2010, the COI fund balance was $124,508, as well as an additional $28,756 in the revenue fund for $70,200 of bonds outstanding. This mitigates concerns about high loan defaults. The issuer and trustee have confirmed that the COI fund is pledged to bondholders and will be used to cure any debt service deficiencies which may occur as a result of loan defaults. The COI fund is legally restricted to remain within the indenture for the life of the bonds but may experience disbursements for its original purpose such as fiduciary fees.

In addition, we have reviewed cash flows which demonstrate the program's ability to withstand additional defaults of 21% without using the COI fund to cover deficits. The cash flows were run at three different prepayment scenarios and assumed 0% reinvestment rates on funds. If the COI fund is used, the program can withstand 100% loan defaults.

Outlook

WHAT COULD CHANGE THE RATING UP:

* Significant improvement of loan portfolio performance

WHAT COULD CHANGE THE RATING DOWN:

* Further deterioration of the loan portfolio that exceed Moody's loan loss projections

* Decline in asset-to-debt ratio, including disbursements from the costs of issuance fund that materially impact asset to debt coverage

The principal methodology used in this rating was Moody's Approach to Rating Second Mortgage Bonds.

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.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Analysts

Shane Mullin
Analyst
Public Finance Group
Moody's Investors Service

Gregory W. Lipitz
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S CONFIRMS Baa3 RATING OF NEW MEXICO MORTGAGE FINANCE AUTHORITY TAX EXEMPT SECOND MORTGAGE PROGRAM BONDS SERIES 2000A AND REMOVES FROM WATCHLIST; OUTLOOK IS NEGATIVE
No Related Data.
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