NEW YORK - Fitch Ratings released its January 2010 state housing finance agencies (SHFAs) statistical report which contains updated financial statement information for 34 SHFAs through the fiscal-year ending June 30, 2009.
While not a complete list of SHFAs, the results provide an informative gauge as to how the tax-exempt housing sector performed during fiscal 2009 and what to expect for the remaining SHFAs with fiscal years ending through Dec. 31, 2009.
Among the trends: increased provision for loan losses in SHFA program portfolios during fiscal 2009 as delinquencies rose; reduced interest income on investments resulted in reduced operating revenues and net interest spreads; constant to moderately higher interest expenses than in fiscal 2008; transfers in from other funds to support balance sheet and counteract operating losses; and balance sheet reductions across the board.
Comparing fiscal 2009 results with those from fiscal 2008 for the 34 SHFAs, total assets decreased by 1% while total debt decreased by 1.5%. The across the board declines mark a significant change in SHFA balance sheets compared to previous years where total assets and debt grew by near double digit figures.
Reflecting on overall performance during fiscal 2009, the 34 SHFAs continued to perform relatively well, although certain indicators and margins weakened compared with fiscal 2008 levels. In terms of profitability, the 34 SHFAs had a median net interest spread (NIS) of 19.9% in fiscal 2009, down from 22.5% in fiscal 2008 for the same 34 SHFAs. With 31 of the 34 SHFAs having decreased NIS in fiscal 2009, this marks the second straight year that median NIS declined.
Similar to fiscal 2008, decreased interest income, along with increased or constant expenses led to decreases in operating revenue. This trend is reflected in a decline in median net operating revenue as a percentage of total revenue for the 51 SHFAs (after eliminating the GASB Statement No. 31 adjustment) to 6.7% in fiscal 2009 from 10.9% in fiscal 2008. It should be noted, however, that some SHFAs faired well despite reduced investment income due to increases in loan revenue.
Additionally, the median adjusted debt-to-equity ratio for the 34 SHFAs decreased significantly to 5.1 times (x) in fiscal 2009 from 6.1x in fiscal 2008 for the same 34 SHFAs; which is much lower than the median of the 10-year averages of 6.4x. The significant decline follows several years of increases as SHFA new bond issuance all but halted in fiscal 2009.
The percentage of variable-rate debt outstanding for the 34 SHFAs increased to 27.4% in fiscal 2009 from 22.3% in fiscal 2008 for the same 34 SHFAs. This is due more to a decrease in overall debt than a significant increase in new variable-rate debt. As debt issuance increases among SHFAs and as New Issue Bond Program (NIBP) debt is accounted for in financial statements, Fitch expects the percentage of variable-rate debt outstanding to decrease into fiscal 2010 and through the medium term. For the SHFAs that have variable-rate debt outstanding, approximately 84% of this debt is hedged with interest rate swap contracts. This percentage has increased from previous years.
For the third year, Fitch is including information on mortgage-backed securities (MBS) held by SHFAs as part of their programmatic functions. Fiscal 2009 results for the 34 SHFAs showed that 21 held MBS in their portfolios. Fitch expects that into FY 2010 and for the foreseeable future, there will be increases in the number of SHFAs with MBS in their loan portfolio as well as increases within SHFAs that already utilize the securities as part of their loan programs given the New Issue Bond Program (NIBP) established by the U.S. Treasury in October 2009. However, the trend was noticeable in earlier years as SHFAs found securitization as a viable option. The incentive to utilize MBS in new single-family program indentures under NIBP will likely result in noticeable increases in fiscal 2010.
Fiscal 2009 was a challenging year for SHFAs, as well as for the broader housing sector and capital markets; and therefore, it is not surprising to see significant deviations from previous trends in the financial results of SHFAs. From reduced interest income on investments to increases in loan loss reserves, coupled with declining debt-to-equity ratios, the data in this year's book reflects the altered landscape that SHFAs will have to navigate as they continue their operations in 2010.
