State housing finance agencies could continue to face downgrades over the next 12 to 18 months, despite some signs of a rebound, according to Moody's Investors Service.

In a July report, Moody's detailed how higher rates HFAs must charge on the mortgages they write can no longer compete with today's historically low rates, given the still shaky private sector. Without the higher yield, investors are turning away and many states must look to the secondary market to continue funding their loans.

Progress, however, remains slow.

"Credit stress for HFAs continues to be felt due to low conventional mortgage rates, which have made it difficult for them to issue bonds at low enough rates to finance competitive mortgage loans," said Moody's Senior Analyst Rachael McDonald again this week.

Some may ramp up sales of mortgage bonds into the secondary to market to increase revenues.

McDonald said the HFAs with the most variable rate debt, counterparty exposure and dependence on investment income will likely face downgrades. But unemployment declined in some of the hardest hit states and home prices appeared to stabilize this year, which could ease delinquency rates and high liquidity fees for some.

"In addition, over the last few years, many HFAs have developed new management strategies that, combined with a stronger economy, may help move the sector to more solid ground," McDonald said.