LOS ANGELES — Moody's Investors Service on Feb. 28 revised its outlook to positive from negative on $3.02 billion of California Housing Finance Agency home mortgage revenue bonds and affirmed its Baa2 rating on the bonds.

Moody's also affirmed the agency's A3 issuer rating and A3 rating on $69.7 million in housing program bonds. The ratings agency also revised the outlooks on those to stable from negative.

Improvements in the California housing markets have resulted in increased balance sheet strength and profitability resulting from declines in losses from single family mortgage loan delinquencies and foreclosures, according to Moody's report.

Factors in the outlook revisions were improved financial and loan performance, progress in reducing stresses from variable rate debt, an improving state economy, effective program management, and improving asset quality. The cash flow projections also demonstrate an improved ability to absorb stresses related to loan losses and variable rate debt, according to analysts.

Strengths for the home mortgage revenue bonds include mortgage insurance to mitigate loan losses. It holds Federal Housing Administration insurance on 28% of loans and Genworth Mortgage Insurance Corporation reinsurance on 35% of loans.

Another factor cited by analysts for the improved outlook was the Feb. 5th upgrade of GMIC to Ba1 from Ba2 with a positive outlook.

Among the weaknesses cited by analysts are that mortgage delinquencies, although down by half from peak levels, remain elevated compared to averages of rated peers and statewide benchmarks.

Among concerns are that the hedged portion of variable rate debt could cause stress in rising interest rate cash flow scenarios, according to analysts.

The external liquidity facilities on variable rate demand bonds are scheduled to expire on Dec. 23, 2015; and if not extended or replaced will result in higher interest rates on the bonds and accelerated repayment of bonds by December 2022, adding stress to cash flow scenarios, analysts said.

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