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Moody’s Report Highlights Positive HFA Economic Trends

Published on September 9, 2014 by Glenn Gallo
Moody’s Report Highlights Positive HFA Economic Trends

A report released last week by Moody’s Investors Service finds that HFAs in FY 2013 experienced increased profitability, higher asset-to-debt ratios, and growing fund balances as a percentage of bonds outstanding.

The study, which is based on audits from 49 states and 4 rated local HFAs, discusses three major findings:

Median profitability improved 6 percent to its highest level in 4 years, 11.1 percent.  According to the report, the ability of HFAs to originate full-spread mortgage loans under the New Issue Bond Program (NIBP) contributed to the improving profitability.  The report notes that HFAs generated a significant increase in revenue from financing loans through secondary market sales, including sales to the To-Be-Announced (TBA) market and to Government-Sponsored Enterprise (GSE).  Of the 53 HFAs rated by Moody’s, 48 had positive net revenue ranging from 2 percent to 37 percent.  Although the remaining 5 were unprofitable, their losses were offset by health fund balances.

Median HFA-wide asset-to-debt ratios continue to grow as bonds are paid down and fund balances accumulate larger cash positions.  Moody’s finds that median asset-to-debt ratios also improved in FY 2013, growing from 1.26 in 2012 to 1.28.  The report also finds that outstanding HFA debt continued to decline, reaching a new all-time low of $100 billion, down 9 percent from 2012 and 20 percent from its $125 billion peak in 2010.  Ninety-two percent of HFAs had outstanding debt decline, reducing the median of outstanding bonds to $1.2 billion.  As the chart below shows, the outstanding bonds median is down 30 percent from the 2010 high of $1.6 billion.  The report predicts that the rate of decline for bonds outstanding will moderate in the near term, then rise over the next 3 to 5 years.


HFA general fund balances as a percent of bonds outstanding grew 13 percent.  As shown in the figure below, Moody’s reports a steady growth of HFA median general fund balances as a percent of bonds outstanding to nearly 7 percent in 2013.  The report credits the year-over-year increase of 13 percent to upfront payments received by HFAs from financing loans through secondary markets.  HFAs reported a 16 percent increase in secondary market activity in 2013 to 66 percent, up from 50 percent in 2012.  HFAs typically hold these fees in their general fund for a variety of purposes including:  offering down payment assistance, investing in securities, purchasing mortgage servicing rights, or funding affordable housing programs.  Moody’s predicts that HFAs will continue to balance asset management strategies in order to generate healthy returns.