NEW YORK - Moody's Investors Service said it has downgraded Pima and Tucson County, Ariz., Industrial Development Authority single-family mortgage revenue subordinate bonds Series 2007A-2 to B3 from Ba3, and has removed it from review for downgrade.

The rating action affects approximately $675,000 of outstanding debt and was driven by an assessment of additional cash flow scenarios on the program and deteriorating loan portfolio performance.

Analysis of several cash flow scenarios indicates the possibility of revenue shortfalls in approximately 11 years. Additionally, loan portfolio performance has deteriorated since October 2011.

As of January 3, the number of current loans in delinquency or default has increased to 37% from 30%, and the composition of delinquent loans that are 120 days delinquent -- and therefore have a lower probability of performing -- has significantly increased. The overall housing market in Tucson remains weak, and house prices have declined to near 2001 levels.

The 2007 A-2 subordinate bonds were issued in conjunction with the 2007 A-1 senior bonds. The senior bonds are not affected by this rating action and are rated Aaa(sf).

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