Fitch Affirms 'AAA' Ratings on Puerto Rico HFA Single Family Mortgage Revs; Outlook Stable

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'AAA' rating on the $191 million Puerto Rico Housing Finance Authority (the Authority) mortgage subsidy program single family mortgage revenue bonds (MRB), 2002 portfolio IX ($100.3 million), 2006 portfolio X ($72.1 million) and 2008 portfolio XI ($18.7 million). Additionally, Fitch assigns a Stable Outlook.

Rating Rationale:

--The affirmation of the long-term 'AAA' ratings on the three single family program indentures-2002 portfolio IX, 2006 portfolio X and 2008 portfolio XI - reflects the fact that each portfolio consists of Ginnie Mae (GNMA) backed mortgage certificates where timely payment of principal and interest is guaranteed. The GNMA mortgage backed securities are collateralized at a level that exceeds the bonds outstanding. The cash flow projections at the time of origination demonstrated a strong overcollateralization level of over 1.1 times (x) asset parity under a zero percent prepayment scenarios in all three MRB portfolios;

--The affirmation also reflects that the current contribution accounts within each portfolio are sufficiently funded. The Authority set aside these funds for costs of issuance and for a rate subsidy sized to bond maturity, thereby ensuring that there would be no non-asset bonds. Funds cannot be removed from the indentures without a cash flow verification report;

--Finally, the affirmation takes into account the strong reserve levels and established program oversight abilities. The Authority is a subsidiary of the Puerto Rico Government Development Bank (GDB). Although the GDB does not provide an explicit guarantee to the Authority's bonds, the GDB's purpose is to enhance the development of Puerto Rico's economy;

--The Stable Rating Outlook reflects the HFA's commitment to maintaining the credit quality of the mortgage subsidy programs, highlighted by the upfront deposits at issuance to maintain subsidy payments for the term of the mortgages and the existing structure whereby delinquent mortgages do not affect the cash flow of the portfolios as principal and interest payments are guaranteed by GNMA regardless of the underlying loan performance.

Key Rating Drivers:

--Removal of funds from the program following a cash flow verification report, causing a decline in the level of overcollateralization in the indentures.

Credit Summary:

All three bond series were issued under separate indentures to continue the Authority's single family mortgage purchase programs. In each indenture the portfolios were expected to provide a mortgage subsidy to low and moderate income borrowers with the rate subsidy deposited in an account pledged to each specific indenture. Once originated the loans were used to purchase GNMA certificates which provide guaranteed timely payments for the bonds.

As of Dec. 31, 2010, $191.0 million in bonds were outstanding from the 2002, 2006 and 2008 series transactions. Asset parity calculated using the GMNA securities and the contribution account at December 31, 2010 was 1.16x for the 2002 indenture, 1.10x for the 2006 indenture and 1.23x for the 2008 indenture.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (Aug. 13, 2010).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565

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