Standard and Poor’s: HFA Single-Family Delinquencies Continue to Decline
A report released earlier this week by Standard and Poor’s Rating Services (S&P) finds that State HFA single-family whole loan delinquencies declined again in the second quarter of 2014 to their lowest level since the third quarter of 2009. The report, which examined 32 HFA single-family whole loan bond programs (and the program run by the California Department of Veterans Affairs), predicts that state HFA loan performance will continue to perform strongly enough so as to not risk a ratings downgrade for any HFAs.
According to S&P, the single-family HFA loan delinquency rate for the second quarter of 2014 was 6.29 percent, down from 6.64 in the previous quarter. This rate was only 1.65 percentage points higher than the delinquency rate for states’ prime loan pools, the smallest such difference since the third quarter of 2012 and nearly a full percentage point less than the gap in the fourth quarter of 2013. S&P posits that one of the reasons this difference persists is that many HFAs have been unable to fund new loans through tax-exempt Mortgage Revenue Bonds (MRBs) because of a difficult interest rate market. This has prevented HFAs from being able to add whole loans of more recent vintages, which have been performing better than those loans issued in the years leading up to the housing crisis, to their portfolios. Those loans that HFAs originate through secondary market sources do not count toward their whole loan delinquency rates because the HFAs do not hold the loans.
State HFA loans strongly outperformed subprime loans, which had a delinquency rate of 11.53 percent. Fifteen states had subprime delinquency rates of more than 10 percent, and four had rates of more than 20 percent. Three state HFAs had a delinquency rate above 10 percent, down from eight the year before.
Looking forward, S&P projects that HFA loan delinquencies will increase in the second-half of 2014, in keeping with seasonal patterns. However, the rating agency believes that delinquencies will be down year-over-year in both quarters. In addition, the report expects the delinquency rates of HFAs’ whole loan programs to remain far below the threshold that would trigger a ratings change.