The $1.2 trillion in automatic, across-the-board spending cuts that went into effect in March will have a low to moderate impact on public finance housing bond issuers, Moody's Investor Service found in a report released Tuesday.
The seven-page report, a special commentary on the impact of sequestration, analyzes how the spending cuts will impact single-family and multifamily programs as well as military housing.
Most of the Moody's rated housing programs do not depend directly on federal housing funds which are subject to sequestration. There are exceptions however, including public housing authority (PHA) capital fund bonds and multifamily bond programs.
The PHA capital fund bond program and multifamily programs will each see a 5% cut due to sequestration.
Reduced federal employment and economic activity as a result of sequestration cuts will increase mortgage payment delinquencies and foreclosures, the report said. Single-family loan bond programs supported by state and local housing finance agencies are primarily secured by payments on the mortgage loans financed under the program.
"HFA delinquency and foreclosure rates are likely to remain elevated mostly because borrowers are low-to-moderate income households susceptible to economic distress due to unemployment or under-employment," the report said.
An economic decline or increase in unemployment may have a modest impact on multifamily bond programs that rely on mortgage payments from rental developments to pay bond debt service, Moody's said. The size of loan pools and program strength diminishes the impact of stress on individual projects. Additionally, the risk to bondholders is minimized because the bonds are secured by mortgage payments at the project level and not by tenant payments.
