Additionally, Fitch affirms the following
The Rating Outlook for the project account and the DASNY bonds is Negative.
The Rating Outlook for the single-family account is Stable.
The MIF is secured by all the reserves in the SONYMA MIF. Both the project and single-family accounts maintain individual reserve accounts.
KEY RATING DRIVERS
ADEQUATE RISK-TO-CAPITAL RATIOS: The project and single-family accounts still maintain relatively low risk-to-capital ratios (based on original loan balances) which are commensurate for their respective ratings. The Negative Outlook on the project account reflects a rapidly increasing risk-to-capital ratio which has risen to 2.65x in FY 2014 from 2.24x in FY 2012.
REDUCED FINANCIAL SUPPORT/INCREASED COMMITMENTS: The state continued its financial support in the form of mortgage recording tax surcharge receipts (surtax receipts) of
SOUND RESERVES/LOAN PERFORMANCE: All reserves are invested in highly-rated, liquid assets. Additionally, loan losses have historically been low relative to the amount of risk insured.
DECREASED SNF RISK: Special needs facilities (SNFs) present the greatest risk to the portfolio; this portion of the portfolio has decreased to 4.5% in 2014 from 20% in 2007.
INCREASED RISK TO CAPITAL RATIO: As the risk-to-capital ratio on the project account continues to increase, it may increase to a level such that it may no longer be appropriate for the 'AA-' rating and could result in a downgrade.
STATE TRANSFERS: Surtax receipts have been increasing in recent years and SONYMA has transferred large lump sums out of project account reserves. Continued transfers may drain reserve accounts and could put negative pressure on the project account's rating.
INCREASED COMMITMENTS/LOAN LOSSES: Increases in commitments or loan losses could increase risk-to-capital ratios and put negative pressure on the respective account's rating.
Fitch's rating approach for a state housing finance agency (SHFA) mortgage insurance or guarantee fund program involves: a quantitative assessment of the fund's financial profile, an assessment of operating cash flows, a detailed analysis of the insurer's risk portfolio, and a qualitative analysis of management and program provisions.
A major credit component in the Fitch analysis of a mortgage insurance fund is an assessment of a MIF's financial resources with respect to the fund's overall operations and the availability of capital to cover potential claims. As part of its review of financial resources, Fitch reviews the following: the mortgage insurance fund's financial performance, established reserve levels, capital adequacy ratios, claims payment history and the insurance funds' investments. Fitch views the primary driver of a MIF to be the program's risk-to-capital ratio which measures total potential claims risk of an insured loan portfolio to the insurance fund's dedicated reserves and available capital for claim payments.
Fitch analysis considers a MIF's ability to generate cash flow from operations and its sufficiency to cover operating costs, potential claim payments, additional risk from the addition of newly insured loans, and debt payments (if any).
Fitch views a MIF's risk portfolio and the quality of the insured mortgages as a key credit component in the analysis. Fitch's analysis focuses on several major areas in determining the quality of the insured portfolio and the degree of risk within the portfolio: the program's underwriting standards for insured loans/projects, the type of loans/projects being insured, concentration within the risk portfolio, and state economic indicators.
The effectiveness of governance and management oversight is an important factor in assessing a MIF's creditworthiness. Fitch evaluates the following areas when reviewing a MIF's management capabilities: history of successful financial operations, staff personnel experience and continuity, historical program oversight abilities, disclosure abilities, and the level of SHFA board participation within the program. Additionally, Fitch reviews program provisions for: any cap on risk-to-capital ratios, any investment guidelines for reserve funds, underwriting standards for insured projects, and any ability for reserve funds to be transferred out of the program.
The MIF was created in 1978 as a separate operating unit of SONYMA and is made up of two accounts: the project pool account and the single-family account. The project pool account primarily insures mortgages on multi-family housing, cooperative housing, and housing for the elderly. To a smaller extent, the project pool account insures mortgages on SNFs, elderly assisted-living residences, and retail and community service projects. The single-family account provides primary and pool insurance for single-family houses throughout the state of
Continuous transfers out of the project account reserve funds could potentially drain excess reserve accounts, increase risk-to-capital ratios, and put negative pressure on the project account's rating. The Negative Outlook on the project account reflects its increasing risk-to-capital ratio and the reduced support from the state in the form of increased transfers out of the project account's reserves. As the risk-to-capital ratio continues to increase, this ratio may no longer be appropriate for the 'AA-' rating and could result in a downgrade.
The MIF's sources of revenues are in the form of surtax receipts, investment earnings, fees, and premiums. MIF's main source of revenue is the mortgage surtax receipts, which were
Given the increasing demand for SONYMA MIF project account insurance in recent years, there is an increased reliance on surtax revenues to cover the additional insured risk that the surge of new commitments will bring. While surtax revenues have increased in the last couple of years, the state has required transfers which has minimized or negated the benefit of incoming revenue support. Continued transfers from the project account could further strain reserve accounts relative to insured risk and may put negative pressure on the rating. Credit concerns continue to revolve around the state's ability to redirect MIF reserve funds.
PROJECT POOL ACCOUNT
In addition, a positive credit factor has been the decrease in risk of SNFs as a percentage of the project account's portfolio in comparison to previous years. SNFs are the riskiest form of project due to their heavy reliance upon
Additional information is available at 'www.fitchratings.com'.
--'Revenue-Supported Rating Criteria,'
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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