The financial position of the US state housing agencies (HFAs) remained resilient through fiscal year 2011 despite the ongoing low interest rate environment, Moody's Investors Service says in its annual medians report.

"While HFA profitability has remained resilient over the last three years, we expect low interest rates will remain a financial challenge for the remainder of 2012 and 2013 and is one of the contributors to the negative outlook on the HFA sector," said Moody's Richard Kubanik, the author of the report.

Low interest rates reduce opportunities for HFAs to earn investment income and offer mortgage loans which are both competitive with the conventional market and profitable for the HFA.

The Treasury's New Issue Bond Program (NIBP) offered the HFAs low cost bond financing so they could originate competitive mortgages, and bolstered HFA profitability in FY 2011. The ending of Treasury's NIBP, however, compels HFAs to seek new methods of accessing low cost capital in order to remain competitive in the core mortgage lending market segment.

During 2011, continued profitability, albeit lower than historical levels, supported HFA balance sheets as asset-to-debt ratios remained stable.

>Median HFA profitability stabilized at 8.7%. Programs with variable rate debt above 25% of bonds outstanding reversed a two-year trend and were more profitable than fixed rate programs at 10.3% versus 8.2%. Reasons for their better profitability include the low interest rate environment, successful remarketings and avoidance of bank bonds.

Median asset-to-debt ratios continued to demonstrate stability at 1.21x as a result of the continued profitability, limited loan losses, and declining bond liabilities.

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