Connecticut housing bond sale to backstop mortgages

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The Connecticut Housing Finance Authority expects to finance 695 mortgages for first-time home buyers through its planned $118 million sale of fixed-rate bonds on Tuesday.

Rocky Hill-based CHFA is a self-funded, quasi-public agency. The authority expects triple-A ratings from S&P Global Ratings and Moody’s Investors Service, it said in a statement.

"Sales of tax-exempt bonds are the mechanism that allows CHFA to offer below-market interest rates,” said executive director Karl Kilduff. The bonds, he added, funded nearly 3,000 mortgages for first-time home buyers statewide last year.

Morgan Stanley is senior manager. Hawkins Delafield & Wood LLP, Kutak Rock LLP and Lewis & Munday PC are co-bond counsel. Lamont Financial Services Corp. is financial advisor.

CHFA’s current mortgage interest rates are 3.625 – 3.825%, for the 1-point option, well below the current average conventional rate. According to Freddie Mac, the average conventional rate as of April 19 is 4.47%, up from 3.95% in the first week of January.

This issuance will support increasing demand from first-time home buyers, according to Kilduff. The authority defines a first-time home buyer as a borrower who has not owned a home in the last three years.

Kilduff said with rising prices up 3.7% year over year, according to the Federal Housing Finance Agency, and tight inventory, buyers face a challenging housing market this spring.

“For first-time home buyers, CHFA’s below-market rate can be the difference between buying and not buying a home, or enable a first-time buyer to purchase a larger home than they could afford with higher interest rates,” he said.

CHFA sold $1.07 billion of bonds through seven issues last year, it said in its March 18 annual report to Gov. Dannel Malloy and the General Assembly. Excluding refunding, the authority raised $550 million of lendable proceeds to fund single-family mortgages and $84 million to fund affordable housing developments.

It anticipates issuing roughly $715 million of bonds this year.

Moody's based its rating on "the high overcollateralization of assets to liabilities, very strong program cash flows, a high percentage of government-insured loans and support from the state of Connecticut through the housing mortgage capital reserve fund."

A severe decline in the financial performance of the program that causes the asset-to-debt ratio to drop could lead to a downgrade, according to Moody's. "However, given the housing mortgage capital reserve fund, the rating of the program is unlikely to fall below that of the state," said Moody's.

Earlier this month, CHFA announced the approval of $8.08 million in federal low income housing tax credits. The tax credits will generate $79.9 million in equity from private investors for six proposed affordable multifamily housing developments in East Haven, Hartford, Montville and Norwalk.

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