State Housing Finance Agencies Well-Insulated From Mortgage Mess: Moody’s

Delinquencies and foreclosures rose in 2007 for state housing finance agencies’ single-family loan programs — not surprising, given the current situation in most key housing markets across the nation — but most programs’ rates remained consistent with historical levels, Moody’s Investors Service said Thursday.

Delinquency and foreclosure rates for single family whole loan programs rose to 3.58 percent in 2007 from 3.29 percent in 2006, but remained below the 2005 level of 3.82 percent.

“While some HFAs are experiencing higher rates, we believe that the security provided by the programs’ mortgage insurance and overcollateralization support the existing ratings on the programs and will compensate for the losses that most HFAs would experience due to severe housing price declines and loan foreclosures,” said Moody’s analyst Rachel McDonald.

In 2007, 21 of 34 Moody’s rated HFA programs had foreclosure rates below 1 percent, and 10 of those were below .50 percent. Only two HFAs reported foreclosure rates above 2 percent for 2007, McDonald said.

“Property value declines will cause some stress within the agencies’ portfolios, particularly in states where property value declines and foreclosure rates are most severe,” she said.

So, too, might pending legislation in Congress that wants to expand HFA lending programs, by allowing states to issue tax-free municipal bonds to fund refinancing by troubled and subprime borrowers into fixed-rate mortgages offered by various state-level HFAs. Some sources have suggested to HW recent that such a policy could likely introduce additional risk into various state-level housing finance authorities.

Connecticut is one of many states now looking to its HFA to help troubled borrowers and stabilize local housing markets; HW covered a bill earlier this week now being considered by Connecticut legislators that will provide the state’s HFA with $70 million to refinance troubled mortgages, and give it expanded authority to purchase up to $1.5 billion in non-agency mortgages.

“A subprime borrower in loan A is usually still a subprime borrower in loan B,” said one source, who asked not to be named. “Improving the affordability of the loan is certainly a step forward, but past loss experience even prior to the bubble suggests that there is ultimately good reason for the credit classification.”

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