Fitch Ratings has assigned a 'AA+' rating to the following Indiana Housing and Community Development Authority (the authority) single-family mortgage revenue bonds.

--$85.935 million 2024 series B-1 (Social Bonds) (Non-AMT);

$4.065 million 2024 Series B-2 (Social Bonds) (AMT);

$108.945 million 2024 series B-3 (Social Bonds) (Taxable).

The Rating Outlook is Stable.

RATING ACTIONS

Entity / Debt

Rating

Prior

Indiana Housing and Community Development Authority (IN) [Single Family June 2016 Indenture Program]

Indiana Housing and Community Development Authority (IN) /Jun 2016 Indenture - SF Mortgages/1 LT

LT

AA+

Affirmed

AA+

Page

of 1

VIEW ADDITIONAL RATING DETAILS

The 'AA+' rating reflects the strong asset quality of the program given the MBS portfolio. As government sponsored entities (GSEs), Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) guarantee the full and timely payment of principal and interest on the respective MBS regardless of actual performance of the underlying loans.

The rating also reflects the program's strong financial and cash flow asset parity ratios. As of the fiscal 2022 audit (Dec. 31, 2022), the program had a strong financial asset parity ratio of 115%. The asset parity declined from 133% in fiscal 2021; however, this was primarily a result of a significant change in the fair value of investments, an unrealized change that affected the program's net position.

Under Fitch's stress scenarios, the program maintains a minimum cash flow asset parity of approximately 107% for the life of the bonds. Fitch will continue to monitor the degree to which down payment assistance (DPA) funding, either as grants or second loans, affects net operating income and the program asset parity.

SECURITY

The bonds are secured by: MBS guaranteed by Ginnie Mae, Fannie Mae and the Freddie Mac and by certain cash and investments held under the Indenture.

KEY RATING DRIVERS

Asset Quality - 'Strong' - The Indenture assets primarily consist of MBS, for which the GSEs guarantee the full and timely payment of principal and interest regardless of actual performance of the underlying loans. The assets also include cash and investment securities of sufficient credit quality to support the rating.

Mortgages permitted to be placed into MBS must be fully documented and follow strict underwriting requirements to qualify. As of Dec. 31, 2023, there was $1,182.7 million in MBS outstanding under the Indenture. There was also $252.4 million in investment securities, excluding MBS, held in the loan, revenue and acquisition accounts under the Indenture.

Cash Flow Asset Parity - 'Strong' - The rating also reflects the program's high, albeit declining, levels of cash flow asset parity. After incorporating Fitch's stress assumptions, which include interest rate stresses, loan origination stresses, prepayment stresses and increased fees upon liquidity renewal, the program maintains a cash flow asset parity position above 107% for the life of the bonds. This compares with cash flow asset parity of approximately 115%, with similar stresses, one year prior and 128% two years prior.

The decline in cash flow asset parity reflects an increase in bond-financed DPA second mortgages, which are pledged to the Indenture, but excluded as program assets in the stressed cash flows. The DPA loans totaled approximately $41 million, or 5% of total outstanding loans, as of fiscal 2022. In fiscal years prior to 2021, program resources were used to fund DPA grants. The stressed cash flow parity incorporates a full loss on the existing loans as well as the $38 million in anticipated-to-be financed DPA second loans. Continued origination of DPA loans at the current levels could pressure the cash flow asset parity ratio given the full loss assumption for these loans.

Financial Resources and Program Structure - 'Strong' - The program's financial asset-parity ratio was 115% as of fiscal 2022, a decline from 133% in fiscal 2021, though the decline in net position was primarily a result of a $71 million decrease in the Indenture's fair value of investments. Without the change in fair value of investments, net operating income was $2 million. Net interest spread improved to 31.7% in fiscal 2022 from 28.5% in fiscal 2021. Variable rate debt is minimal at 3.4% of total outstanding debt as of Jan. 1, 2024.

The legal provisions allow surplus funds in excess of 103% to be withdrawn from the Indenture. However, 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 Indenture 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

Given that the program is primarily supported by MBS, any negative rating action on the U.S. sovereign rating will directly affect the rating on the bonds. As GSEs, the ratings of Fannie Mae, Ginnie Mae and Freddie Mac are currently linked to the U.S. sovereign rating;

Should Fitch's view of the U.S. government's direct level of financial support for Fannie Mae or Freddie Mac change, the rating of the two GSEs may be delinked from the U.S. sovereign rating and may result in negative pressure on the bonds;

Continued increases in the origination of DPA second loans and/or transfers out of the program such that the stressed cash flow asset parity falls below 102% when including a full loss on the DPA loans.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Given that the program is primarily supported by MBS, a positive rating action on the U.S. sovereign rating will positively impact the rating on the bonds based on the existing portfolio composition;

Fitch does not currently have data to support a loan-by-loan review of IHCDA's underlying loan data and performance history for the single-family mortgage revenue bond program; however, if such data is received and analyzed, Fitch could determine that it supports a rating and/or outlook that is not linked to the rating of the GSEs.

PROFILE

The authority was established in 1978 as a public body corporate and politic of the state of Indiana. It is empowered to purchase loans from lenders to provide permanent financing for the rehabilitation, acquisition or construction of single-family residential housing made to persons of low and moderate income.

The 2024 series B bonds are being issued: (i) with respect to a portion of the 2024 Series B-1 ad B-2 bonds, to refund certain outstanding debt of the Authority in order to make funds available which will be used, together with the remaining proceeds of the 2024 Series B Bonds to finance single-family mortgage loans through the purchase of MBS; and (ii) to provide approximately $11 million to fund DPA loans.

The 2024 series B bonds are being issued on parity with the Indenture's outstanding debt. As of Jan. 1, 2024, there was approximately $1,268.64 million in outstanding bonds issued under the 2016 Indenture, with $43.7 million (consisting of the 2017 series B-3 and C-3 bonds), or 3.4% of the total outstanding debt, in the variable rate mode. As of Dec. 31, 2023, there was $1,182.7 million in MBS outstanding under the Indenture. There was also $252.4 million in investment securities, excluding MBS, held in the loan, revenue and acquisition accounts under the Indenture.

The authority is issuing the 2024 series B bonds as Social Bonds based on the intended use of proceeds to finance mortgage loans and to fund DPA loans to first-time homebuyers of low and moderate income throughout the state.

For additional information regarding the U.S. sovereign and Fannie Mae and Freddie Mac ratings, please see the press releases 'Fitch Downgrades the United States' Long-Term Ratings to 'AA+' from 'AAA'; Outlook Stable' dated Aug. 1, 2023 and available at www.fitchratings.com and 'Fitch Downgrades Fannie Mae and Freddie Mac to 'AA+' Following Sovereign Action; Outlook Stable' dated Aug. 2, 2023 and also available at www.fitch ratings.com.

Date of Relevant Committee

28 September 2023

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.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

The rating is linked to the ratings of Fannie Mae, Freddie Mac, and Ginnie Mae, which are all linked to the U.S. sovereign rating.

ESG Considerations

Indiana Housing and Community Development Authority's single-family mortgage revenue bond program (June 2016 Indenture) has 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.

Indiana Housing and Community Development Authority's single-family mortgage revenue bond programs (June 2016 Indenture) has 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 https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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