Fitch Assigns 'AA' LT Rating to Idaho HFA's $23MM Class II Hsg Bonds 2015 Series A-3; Outlook Stable

Fitch Ratings assigns an 'AA' long-term rating to the following Idaho Housing Finance Association (IHFA) single-family mortgage bonds (2003 Indenture):

--$22.52 million IHFA single-family mortgage class II bonds, 2015 series A-3.

In addition, Fitch affirms the 'AAA' rating on approximately $153 million in class I bonds (2003 Indenture) and the 'AA' rating on approximately $9 million in class II Bonds (2003 Indenture).

The Rating Outlook on all bonds is Stable.

SECURITY

The single-family mortgage bonds are issued under a master indenture that pledges revenues, investment earnings, reserves, and other trust funds to secure the bonds. The class I and II bonds have asset parity maintenance requirements directing revenues to be used to call bonds of those classes respectively prior to paying debt service of the next junior class. The class III bonds are secured by the assets and revenues of the indenture and are general obligations (rated 'A+', Stable Outlook by Fitch) of the Association.

KEY RATING DRIVERS

SUFFICIENT ASSET PARITY: As of March 31, 2015, the class I and II bonds had asset parity levels of 118% and 112%, respectively. Additionally, under a variety of Fitch stress scenarios, the cash flows demonstrate minimum asset parity levels of 119% and 111.5% for the class I and II bonds, respectively.

STRONG PROGRAM PROVISIONS: The various supplemental indentures provide for strong asset parity requirements, which range from 106%-121% for the class I bonds and 102%-114% for the class II bonds.

STRONG LOAN PORTFOLIO: As of March 31, 2015, the well-seasoned portfolio was insured by the following federal providers: FHA (57%), VA (4%), and RD (12%). The remaining portion of the portfolio is either uninsured or insured by unrated PMI providers. The portfolio has performed well to date and has had minimal loan losses.

SUCCESSFUL MANAGEMENT PERSONNEL: IHFA has an experienced management team that has demonstrated their expertise in addressing market challenges that affected their bond programs.

WEAK DEBT STRUCTURE: IHFA has been unable to economically redeem certain variable rate debt obligations within the program due to the high termination fees of existing hedging contracts tied to the debt. This has resulted in negative arbitrage, and operating losses, within the program as mortgages prepay and proceeds are invested in lower interest income-yielding investments.

RATING SENSITIVITIES

HIGH LOAN PREPAYMENTS/LOW INTEREST RATES: Given the current debt structure and low interest rate environment, if Idaho Housing and Finance Association (IHFA) mortgage loans prepay at accelerated rates, the program may experience negative arbitrage and/or high termination fees which could increase program operating losses and put negative pressure on the class I and class II bond ratings.

INABILITY TO MAINTAIN PROGRAM PROVISIONS: Any failure to meet the asset parity requirements on the class I and class II bonds would be viewed as a credit negative and would most likely result in a downgrade of the program ratings.

CREDIT PROFILE

The 2015 series A-3 class II single-family mortgage bonds are to be issued on parity with the other class II obligations of the 2003 Indenture. The 2015 A-3 class II bonds are being issued to refund older debt obligations under separate Indentures. After the refunding, a majority of the mortgages and investments securing these older debt obligations will be transferred into the 2003 Indenture. The rating on the 2015 A bonds and the affirmation of the Indenture class I and II bonds reflects current asset parity ratios, strong program provisions, and IHFA management personnel. As of March 31, 2015, the class I and II bonds had respective asset parity levels of 118% and 112%. Additionally, cash flow runs which incorporated various Fitch loss/stress scenarios illustrated minimum asset parity levels of 119% and 111.5% for the class I and II bonds, respectively.

As of March 31, 2015, the program's assets are primarily composed of $109 million in single-family mortgages and $73 million in investments, which are invested in various guaranteed investment certificates (GICs) and money market funds. As of March 31, 2015, the loan portfolio had delinquency rates (60+ days) of 3.5%, which is lower than national averages but higher than state averages. Concerns over loan losses are mitigated by the insurance on the loan portfolio, past performance, and the seasonality of the loans in the portfolio.

Credit concerns stem from the program's operating losses which are attributed to the debt structure, as approximately 76% of the debt under this program is variable-rate with all the variable-rate bonds being swapped to a synthetic fixed-rate. IHFA has been unable to economically redeem certain VRDOs due to the high termination fees of existing hedging contracts tied to the debt. As mortgages prepay, proceeds are reinvested in highly-rated, low-interest yielding instruments which has resulted in negative arbitrage within the program. The negative arbitrage has led to operating losses within the program of $3.9 million and $5.3 million, respectively, in the last two fiscal years. Concerns are currently mitigated by the financial strength of program cash flows and the presence of management personnel, whom have demonstrated a willingness to give financial support for indentures, if necessary.

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

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria (pub. 25 Jul 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712476

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987238

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987238

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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