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 series 2024 A-B bond 'AA+' rating reflects the continued strengthening of the program's asset quality, as evidenced by the growing percentage of the mortgage-backed securities (MBS) portion of the portfolio; the program's continued financial strength demonstrated by cash flow asset parity levels; adequate profitability; and manageable leverage ratios. MCDA expects to continue financing single-family new issuance through the purchase of MBS, which should lead to a continued increase in the portfolio's MBS composition.
SECURITY
The bonds are special obligations of the issuer, payable from the revenues and assets pledged under the bond resolution, which include single-family whole loans; MBS guaranteed by the
KEY RATING DRIVERS
Asset Quality 'Strong': The rating reflects the continued strengthening of the asset quality of the loan portfolio, with a significant increase in the MBS portion of the portfolio to
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 15% of the portfolio as of
The single-family whole loans have exhibited strong performance, mitigating the potential for losses in the program. As of
Cash Flow Asset Parity 'Strong': The rating also reflects the program's continued high levels of cash flow asset parity, with opening parity of 117%. After incorporating various stress assumptions, which include interest rate stresses, prepayment stresses and a 10% loan loss assumption, the program maintains a cash flow asset parity position of no less than 114% for the life of the bonds. Further, Fitch's current loan loss assumption for the portfolio has improved, declining to 8.7% in 2024 from 9.7% in 2023. The level of overcollateralization is sufficient to support the 'AA+' rating on the program given the current composition of the portfolio. MCDA has also maintained the strong credit quality of the program by keeping sufficient excess collateral in the program.
Financial Resources and Program Structure 'Midrange': The program remains financially solid as illustrated by recent financial performance. Although still sufficient to support the rating, the program's financial asset parity decreased to 111% in fiscal 2023 from 115% in fiscal 2022, reflecting a decline in net assets to
Additionally, the program's debt to equity (DTE) ratio increased to 8.6x in fiscal 2023 from 6.4x in fiscal 2022, reflecting a strong year of debt issuance matched by similar growth in assets. The five-year average DTE ratio stands at 6.1x. In Fitch's view, this high leverage is mitigated to a large degree by the program's strong overcollateralization as demonstrated in stressed cash flow projections, along with the high level of mortgage insurance and federal guarantees.
Net operating margin was stable at 29.4% and net interest spread (NIS) remained adequate at 11% in fiscal 2023. Declining NIS also reflects MCDA's shift to MBS, which generally provide lower spreads than whole loan programs. Fitch will continue to monitor the program's financial profile and ongoing trends in profitability and equity levels.
Indenture provisions restrict the release of excess funds, allowing for program funds to be withdrawn down to 102% asset parity.
Asymmetric Risk Factors 'Neutral': MCDA is governed by an experienced management team and active board of directors. MCDA is a unit of the
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Weakening asset quality with significant increases to the whole loan portion of the portfolio, which could also lead to higher delinquencies and loan losses;
Deteriorating financial performance or loan performance that leads to declines in the program's 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
As of
Since 2021 MCDA has issued bonds under the designation of 'Social Bonds' based on the intended use of proceeds, which is to finance mortgage loans for the purchase of owner-occupied single-family residences by persons or families of limited income. The designation reflects lending practices that consider project evaluation and selection, management of proceeds, and post-issuance reporting.
The 2024 series A-B bonds will be the thirteenth and fourteenth series of Social Bonds issued under the RRB program. Bond proceeds will be used for the following purposes: refunding portions of certain Residential Revenue Bonds that are otherwise maturing or subject to redemption, and to purchase MBS currently credited to the
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
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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