LOS ANGELES -- State housing finance agencies strengthened during the recent recession, faring better than states as a sector, according to a recent report from Standard & Poor’s.

While states have proven to be a very strong municipal sector, with a median rating of AA-plus, HFAs are rated nearly as high as states, with a AA median rating, and trends have been more positive for HFAs, Standard & Poor’s analysts said.

“This trend has continued in the recent recession and the current slow recovery despite the housing market’s role in the economic downturn,” according to Lawrence Witte and Gabriel Petek, authors of the report.

States and HFAs have a similar rating trajectory over a long horizon, but it diverges in recent years, with the number of positive rating actions accelerating for HFAs since 2008. S&P has raised one in five state ratings since 2008, while raising a third of HFA issuer credit ratings in the same period.

Analysts said HFA ratings have fared better than those on states because their bond programs hold high-quality collateral in the form of single- and multi-family housing loans. To achieve high ratings, the loans need strong guarantees or the amount of collateral must exceed the debt by a large margin.

In addition, HFA loans usually have mortgage insurance from the U.S. in the form of Federal Housing Administration, Veterans Administration, or U.S. Department of Agriculture guarantees.

The agencies that have come through strongest tended to be those that have portfolios with a high level of municipal mortgage-backed securities and with high asset-to-liability parity.

Analysts said they believe that HFA credit quality will mirror that of states during the coming year. They said that state finances are still relatively depleted and the credit quality rides on the performance of the economy, but S&P anticipates relatively stable rating trends for states in 2013.

“HFAs may be less tied to the real estate cycle if their portfolios contain high levels of federal guarantees,” the report said. “That leads to a lower correlation between HFAs and the economies in which they operate, as well as potentially fewer positive rating actions should the economy improve.”

S&P said HFA production will be more variable than credit quality, which should remain strong in a variety of economic scenarios.

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