NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AAA' rating to the $25,000,000 Vermont Housing Finance Agency (VHFA) mortgage revenue bonds (mortgage backed securities program) as follows:

--$10,000,000 series 2011A;

--$15,000,000 series 2009A, subseries A-2.

The bonds are expected to be sold the week of Oct. 31, 2011 and close on or about Nov. 22, 2011.

Fitch also affirms the 'AAA' rating on the $114 million of parity bonds outstanding under the general indenture as of Sept. 30, 2011.

The Rating Outlook for the bonds is Stable.

SECURITY

The Trust Indenture pledges revenues of the Indenture, Federal Agency Certificates deposited in the Indenture, and funds and accounts created in the Indenture to secure the bonds (other than the escrow fund where deposits are secured solely for the payment of bonds related to the proceeds in the escrow account). Proceeds will be used for the financing of single-family mortgage loans in the state of Vermont through the purchase of GNMA Certificates, Fannie Mae Certificates, and Freddie Mac Certificates (collectively Federal Agency Certificates), as well as to make deposits in various funds and accounts.

KEY RATING DRIVERS

Portfolio Composition: The long-term 'AAA' rating reflects the current and projected composition of the single-family mortgage portfolio, which consists entirely of Federal Agency Certificates. Once the mortgage loans are originated, they are pooled into guaranteed mortgage pass-through Federal Agency Certificates, which are fully guaranteed for timely payment regardless of the actual performance of underlying loans. GNMA mortgage-backed securities are guaranteed by the U.S. government (rated 'AAA' with a Stable Outlook by Fitch); Fitch rates Fannie Mae and Freddie Mac mortgage-backed securities 'AAA' with a Stable Outlook.

Maintenance of Asset Parity: The rating also reflects the trust indenture requirement that the program's minimum asset parity be maintained at 100%, net of cash flow stress test scenarios. Consolidated cash flows provided to Fitch demonstrate full and timely bond payments under various prepayment and origination scenarios, with asset parity maintained at a minimum of 100.6% throughout the term of the bonds.

Management Capabilities: The rating also accounts for VHFA's successful history of administering its single-family programs.

CREDIT PROFILE

The $15 million Subseries A-2 bonds constitute the second release from the $102 million 2009 A escrow bonds originally issued under the Dec. 1, 2009 indenture as part of the New Issue Bond Program (NIBP). The bond proceeds were held in an escrow account and secured solely by amounts on deposit in the escrow account and investment earnings from the account. Upon release of the Subseries A-2 bonds, approximately $69 million will remain in the Series 2009A escrow account. The $10 million Series 2011A bonds will be the third offering issued under the Dec. 1, 2009 indenture.

Bond proceeds will be held in investments permitted under the program legal documents until used to purchase Federal Agency Certificates or until the end of the delivery period. Approximately $6 million of proceeds will be used to purchase Federal Agency Certificates on the date of delivery. Of the remaining $19 million in proceeds, $10 million is expected to be used to purchase Federal Agency Certificates by April 15, 2012 and $9 million by Aug. 15, 2012. Consolidated cash flows reflect last-day origination and non-origination scenarios and an upfront VHFA contribution. The trust indenture allows for extension of the delivery period; however, such extension is contingent on revised cash flows demonstrating sufficiency of funds for full and timely payment of the bonds under various prepayment and origination scenarios.

The 'AAA' rating reflects the current and anticipated portfolio composition of Federal Agency Certificates; the trust indenture requires that loans purchased through this issuance be pooled and financed through the purchase of guaranteed mortgage pass-through Federal Agency Certificates. The rating also reflects the Trust Indenture requirement that the program's minimum asset parity be maintained at 100%, net of cash flow stress test scenarios. In addition, the rating accounts for VHFA's successful history of administering its single-family programs.

The 2009 Trust Indenture was created, in part, so that VHFA could take advantage of the NIBP established by the United States Treasury with the assistance of Fannie Mae and Freddie Mac. Under the terms of the program, Treasury purchased up to 60% of the Program Bonds sold by state and local housing finance agencies with the remaining 40% to be sold to private investors as Market Bonds. The interest rate for bonds sold to Treasury is based on the investment earnings of the escrow fund for the pre-conversion period, and, for the remainder of the period, is based on the 10-year Constant Maturity Treasury (CMT) plus a defined spread based on rating category of bond program.

Because Treasury's authority to complete these transactions under the Housing Economic Recovery Act of 2008 was due to expire on Dec. 31, 2010, all NIBP related transactions were to be completed prior to year end. However, the expiration date was extended for one more year and the program now allows issuers to close prior to the Dec. 31, 2011 deadline. The funds may be held in escrow up until Dec. 31, 2011, at which point they are subject to mandatory redemption on Feb. 1, 2012 (or an earlier date selected by VHFA).

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

This action was informed by information from 'State Housing Finance Agencies - Single Family Mortgage Program Rating Criteria', dated Aug. 15, 2011.

Applicable Criteria and Related Research:

State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648160

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