The 2012 outlook for the nation's state housing finance agencies (SHFAs) remains negative, according to a new report issued by Fitch Ratings, which blamed its lack of enthusiasm on an ‘anemic economic recovery’ and the rating agency's recent downgrading of the U.S. government's rating outlook to a negative rating.
‘The slow economic recovery has put enormous pressure on homeowners, and despite government initiatives, the housing market remains weak,’ says Fitch Ratings. ‘Conventional mortgage rates are at all-time lows, making the SHFA bond program mortgage products less competitive. The revision of the U.S. government's rating outlook to 'negative' has caused a corresponding negative rating outlook for those municipal housing bonds that are secured by Ginnie Mae (guaranteed by the U.S. government), Fannie Mae, or Freddie Mac mortgage-backed securities.’
Fitch Ratings adds that ‘pressures remain on the profitability of the SHFAs, causing the outlook for the tax-exempt housing sector to remain negative. Fitch expects that fiscal 2012 will continue to be just as challenging for loan production and asset management as the last three years given the continued economic uncertainty, depressed housing market, and high unemployment rates. The longer the economy takes to recover, the more downward credit pressure SHFAs will face, and this could translate into issuer and mortgage program downgrades in 2012-2013.’
However, Fitch Ratings held out the possibility that 2012 could turn into a good year for the SHFAs.
‘Fitch's sector outlook could be revised to stable if there is: an increase in SHFA mortgage bond loan production; continued new business revenues; and, a rise in short-term interest rates (that could lead to increases in SHFA investment earnings), which together could restore SHFA profitability,’ the ratings agency says. ‘Additionally, housing market price stabilization, improved loan portfolio performance, return of long-term bond buyer demand and economically priced liquidity facilities would contribute to a stable rating outlook for the tax-exempt housing sector. In addition, a change in the government's rating or outlook would impact Fitch-rated housing bonds directly tied to the U.S. government rating.’