WASHINGTON - Disruption in the short-term market, failed remarketings of variable-rate bonds, and the credit deterioration of counterparties, combined with the U.S. housing market's woes, pose challenges in the coming months for state housing finance agencies, Moody's Investors Service said in a report released Friday.

The rating agency said it plans to begin reviewing state HFAs and will take rating actions "where necessary."

Moody's found risks associated with variable-rate debt in the current market as the greatest in the near term for state HFAs, at 50%, followed by exposures to counterparties, at 30%, and the weakening real estate market, at 20%.

The report weighed the severity that each challenge may have on an HFA in the next three to 12 months, and put nine HFA programs in the "high potential impact" group that are the most vulnerable to current market and economic conditions.

These account for nearly 28% of the total outstanding HFA debt, and include agencies in California, Colorado, Connecticut, Idaho, New Jersey, Pennsylvania, Utah, Texas, and Wisconsin. The common thread among these programs is a high level of variable-rate debt and-or a substantial amount of bank bonds, as well as a concentrated exposure to one counterparty or to certain lower-rated counterparties, the report said.

Moody's placed 15 HFA programs in the "least potential impact" group, including those of Delaware, Oklahoma, and Virginia, among others, saying they represent about 25% of the total HFA debt outstanding. They are deemed to be the least vulnerable to current market and economic conditions due to very low levels of variable-rate debt, well diversified and/or highly rated counterparties, and better real estate fundamentals or mortgage-backed securities programs.

The "moderate potential impact" group consisted of 18 HFA programs, including those of Indiana, Minnesota, and South Dakota, and represented about 47% of the total of the HFA debt outstanding. Moody's said these HFAs are fairly vulnerable to the current market and economic conditions.

"Many of the HFAs have adequate liquidity, strong management, and plans in place to weather the current market turmoil," Moody's analyst and author of the report Omar Ouzidane said in a statement. "Where that is not the case, Moody's will take appropriate rating action and update the market on further developments."

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