Fitch Ratings has assigned a 'AA+' rating to the following
The Rating Outlook is Stable.
RATING ACTIONS
Entity / Debt
Rating
Prior
LT
AA+
Affirmed
AA+
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VIEW ADDITIONAL RATING DETAILS
The 'AA+' rating reflects the continued strengthening of the program's asset quality, as indicated in the growing percentage of the mortgage-backed securities (MBS) portion of the portfolio; the program's continued financial strength demonstrated by the FY23 results and cash flow asset parity levels; and the low percentage (2%) of variable rate debt exposure. VHFA expects to finance single-family new issuance through the purchase of MBS going forward, which will lead to a continued increase in the portfolio's MBS composition.
SECURITY
The bonds are general obligations of VHFA and are secured by: single-family whole loans; multifamily loans; MBS guaranteed by
KEY RATING DRIVERS
Asset Quality 'Strong': The rating reflects the continued strengthening of the asset quality of the loan portfolio, with the increase in the MBS portion of the portfolio to 79% as of
For the MBS portion of the portfolio,
With the increase in the MBS portion of the portfolio, the single-family whole loan portfolio has correspondingly decreased and comprised 14% of the portfolio as of
Both the single-family whole loans and multifamily loans have exhibited strong performance, mitigating the potential for losses to the program. As of
Cash Flow Asset Parity 'Strong': The rating also reflects the program's continued high levels of cash flow asset parity. After incorporating Fitch stress assumptions, which include interest rate stresses, prepayment stresses, increased fees upon liquidity renewal, and loan loss assumptions, the program maintains a cash flow asset parity position above approximately 125% for the life of the bonds.
This level of overcollateralization is sufficient to support the 'AA+' rating on the program given the current composition of the portfolio. The stressed overcollateralization calculation excludes approximately
Financial Resources and Program Structure 'Strong': The program remains financially strong as illustrated in recent financial performance. As of FY23, the program's financial asset parity decreased to 125% from 130% in FY22, still in line with the five-year average asset parity of 126% and sufficient to support the rating. The program demonstrated a positive net operating revenue of
The program's profitability, as measured by the net interest spread and net operating revenues as a percentage of total revenues, both remained strong in FY23, and stable from the prior year levels. The supplemental indentures provisions restrict the release of excess funds, allowing for program funds to be withdrawn to 102% asset parity. Historically, management has not withdrawn substantial amounts from the Indenture's surplus funds and has maintained high asset parity ratios in the Indenture.
Asymmetric Risk 'Neutral': The multiple purpose bond program is neutral to any asymmetric risks that would constrain the rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Weakening asset quality, with significant increases to the uninsured multifamily or whole loan portion of the portfolio, which could cause higher delinquencies and loan losses to the program;
Negative financial performance or loan performance that leads to declines in program retained earnings;
Withdrawal of program funds resulting in a stressed cash flow asset parity ratio that falls below 102%.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Should the program transition to a primarily MBS portfolio, a positive rating action on the
PROFILE
VHFA works to: ensure that all
As of
The 2024 Series A and B bond proceeds will be used to: (i) finance single family loans through the purchase of MBS; and (ii) fund the revenue fund and cost of issuance amounts. The 2024 series A and B bonds are on parity with the outstanding multiple purpose bonds.
VHFA is designating the 2024 Series A Non-AMT bonds as Social Bonds based on the intended use of proceeds to finance single family loans made to low- and moderate-income first-time homebuyers to finance the purchase or improvement of single-family affordable housing located in the State.
Date of Relevant Committee
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.
ESG Considerations
VHFA's multiple purpose bonds have an ESG Relevance Score of '4' [+] for Customer Welfare - Fair Messaging, Privacy & Data Security due to it being an HFA program focused on customer welfare and fair messaging, which contributes to reduced expected losses in the rating analysis.
The focus on customer welfare includes fair lending practices, homebuyer education and counselling, and loss mitigation strategies that, when combined, strengthen the program loan performance, which has a positive impact on the credit profile, and is relevant to the rating in conjunction with other factors.
VHFA's multiple purpose bonds have an ESG Relevance Score of '4' [+] for Human Rights, Community Relations, Access & Affordability due to the GSE guarantee that addresses access and affordability while driving strong performance, which has a positive impact on the credit profile, and is relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Additional information is available on www.fitchratings.com
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