Moody’s Investors Service has downgraded to Aa3 from Aa2 its rating on nearly $1 billion of Illinois Housing Development Authority homeowner mortgage revenue bonds.

The bonds were removed from negative watch, where they were placed in March. The credit’s outlook is now stable.

Analysts cited an increase in Moody’s projections of the IHDA program’s loan-loss exposure under various stress scenarios due to rating downgrades of several private mortgage insurance companies. The new projections exceed the authority’s resources at the Aa2 rating level.

“Mortgage insurance is a significant factor in the ratings of state housing finance agency single-family, whole-loan programs as it mitigates the degree to which a whole-loan program is exposed to losses arising from delinquencies and foreclosures within an agency’s loan portfolio,” analysts wrote.

Moody’s said the agency has taken positive steps to boost the program’s balance sheet and financial resources, including a capital contribution of $35 million from the IHDA’s other programs. It will use those funds and others to purchase $59 million of GNMA mortgage-backed securities which will be held by the program.

The bonds are special obligations of the authority and are secured by mortgage loans and all reserves and other assets under the Homeowner Mortgage Revenue Bond 1994 General Resolution.

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