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Moody's looking to change housing finance agency rating criteria

Seeks guidance on risk profile in ratings

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Moody's Investors Service is seeking guidance from the market on proposed changes to its approach to assigning issuer ratings to the housing finance agencies.

Moody’s said that while it wants the input, it does not expect these changes, if adopted, to result in any issuer rating changes.

“Request for Comment: US Housing Finance Agency Issuer Rating Methodology” describes the two proposed key changes to its current methodology: (1) introducing a scorecard and (2) incorporating a new rating factor entitled, “Risk Profile.”

The scorecard would assess an housing finance agency’s creditworthiness based on four key credit factors to which Moody’s assigns weights:

  1. financial position, 40%
  2. loan portfolio, 20%
  3. risk profile, 20%
  4. management and operating environment, 20%

“These scores round out our quantitative and qualitative analysis by including specific sector attributes,” says Omar Ouzidane, Moody’s assistant vice president and analyst. “They allow us to further break out strengths and weaknesses that can have a significant effect on credit quality.”

Moody’s is also considering assigning a risk profile for housing finance agencies at each given rating level.

“The Risk Profile will allow us to classify the risks that HFAs take on and assess their risk management capacity in a way that incorporates the underlying credit fundamentals in the sector,” adds Ouzidane.

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