Fitch Ratings has assigned a ‘AA+’ rating to the following
The loan is expected to have a credit enhancement under the FHA risk- sharing program.
Additionally, Fitch has affirmed the ‘AA+’ rating on approximately
The HRB resolution pledges to the parity bonds all mortgages in the loan portfolio (other than those made or purchased from standalone bonds) consisting of multifamily and group homes, as well as additional funds pledged under the legal provisions of the resolution.
KEY RATING DRIVERS
Asset Quality (Strong): As of
Cash Flow and Overcollateralization (Strong): On a cash flow basis, the assets under the resolution (assuming a withdrawal of
Financial Resources and Program Structure (Strong): The HRB portfolio maintains strong financial resources exhibited by the program’s financial asset parity of 114% as of
Asymmetric Risk Factors (Neutral): The rating is constrained to its current level because of the issuer’s ability to withdraw excess assets from the resolution and to include various types of loans other than first lien mortgages. However, Maryland CDA has demonstrated strong oversight of the HRB portfolio and has had a long, successful history of administering multifamily programs.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Removal of assets without corresponding debt reduction, resulting in a decline in asset parity and reduction in available liquidity;
Material additions of uninsured loans coupled with a moderate increase in uninsured construction risk, prolonged delays and/or declines in financial performance;
A decline in asset parity that demonstrates insufficient assets under stressed scenarios to address debt service payments in a timely manner.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The issuer’s ability to withdraw excess assets from the resolution and to include various types of loans other than first lien mortgages constrains the rating to its current level.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘
The MCDA was created in 1970 by the State to meet the shortage of adequate, safe, and sanitary housing in
The series 2022 C bonds are on parity with all bonds previously issued under the resolution except the
The series 2022 C bond ‘AA+’ rating and the affirmation of the existing HRB indenture rating reflect asset quality, sufficient overcollateralization, portfolio oversight and performance along with resolution and series legal provisions. The underlying loan portfolio securing the resolution’s bonds, excluding those under the series 2017 A and B, is primarily comprised of 68 multifamily mortgage loans, which, as of
Nearly the entire multi-family loan portfolio is insured, with only 0.4% of the loan portfolio uninsured. Approximately 99.6% of the multi- family loan portfolio is partially or fully insured by one of the following federally-backed agencies: FHA risk-share (90%),
Fitch’s ratings are forward-looking in nature, and Fitch will monitor developments in the sector and incorporate qualitative and quantitative inputs based on expectations for future performance and assessment of key risks. Delinquency rates for multi-family loans may increase due to financial pressures from inflation, the cessation of pandemic-related federal aid, and the impact from eviction moratoriums. Though the federal insurance and guarantees on the multifamily loans in the HRB indenture mitigate this concern, there is uncertainty regarding how the program’s balance sheet and financial ratios would be affected should there be increased transfers from the program and/or decreased debt issuance over an extended period of time. Fitch continues to monitor longer-term impacts to MCDA’s asset quality and financial position.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg.