Fitch Ratings assigns an 'AA' rating to Florida Housing Finance Corporation's (HFC) $50 million homeowner mortgage revenue bonds, 2004 series 5 and 6. The bonds are expected to be sold through negotiation this week by a Citigroup Global Markets-led syndicate. Fitch also affirms the 'AA' rating on the $611 million outstanding homeowner mortgage revenue bonds and the 'AA/F1+' rating on the $36 million homeowner mortgage revenue bonds, 2003 series 4, prior to consideration of any bond insurance.

The current offering is the 15th sale of bonds issued under a flexible master trust indenture adopted by HFC in 1995. Net proceeds from the 2004 series 5 and 6 bonds will be used to continue HFC's single family first-time homebuyer program by purchasing Ginnie Mae, Fannie Mae, or Freddie Mac securities. The long-term rating reflects the current portfolio, the majority of which consists of single family whole loan mortgages as well as a growing portion of mortgage-backed securities (MBS), the expected purchase of additional MBS, sufficient levels of mortgage insurance on whole loans available to protect against potential loan losses, adequate reserve levels and liquidity, and the HFC's satisfactory program oversight abilities.

The master trust indenture adopted by HFC in 1995 establishes the bonds' security lien, new issuance requirements, flow of funds, and minimal loan requirements. Specific program restrictions are incorporated into supplemental indentures at the time of each bond sale. As of Oct. 31, 2004, $511 million in loans and MBS were outstanding, down from $521 million as of July 1, 2004. Nearly one-half (48.8%) of the outstanding whole loan balance (which excludes MBS) is Federal Housing Administration (FHA)-insured, 24.3% is privately insured, 10.8% is guaranteed by the U.S. Department of Veterans Affairs (VA), 5.2% is guaranteed by the U.S. Department of Agriculture, through its Rural Development Guaranteed Rural Housing Program (RHS), and the remainder was uninsured.

Almost all whole loans are covered by mortgage pool insurance under separate policies with varying levels of coverage and constraints. The pool policies include advance claim riders and deductible provisions. The whole loans are performing satisfactorily, 7.1% of the loans are 60 days or more delinquent or in foreclosure as of Oct. 31, 2004 compared with 6.1% as of July 1, 2004. During the period from July to October, four hurricanes caused a yet to be determined amount of damage to properties in the state of Florida. According to HFC's initial assessments and the Oct. 31, 2004 delinquency information, damage to properties in the homeowner mortgage revenue bond portfolio was minimal. Fitch will continue to monitor the effects of the hurricanes and the credit implications, if any, on the mortgage revenue bond program.

All prior bonds used to purchase whole loans require funding a mortgage reserve (2%) and debt service reserve (3%) fund. The 2004 series 5 and 6 bonds do not require funding either reserve fund due to the full and timely guarantee of Ginnie Mae, Fannie Mae, and Freddie Mac securities. Reserves for several bond series have been funded in the form of noncallable surety bonds provided by the respective bond insurer. As of Oct. 31, 2004, the balances in the mortgage and debt service reserve funds were $7.5 million and $11.3 million, respectively, including the stated amounts of surety policies.

During the year ended Dec. 31, 2003, the program's net interest income grew to $4.7 million from $3.3 million in 2002. Accordingly, net interest spread (net interest income divided by total interest income) rose to 15.7% during 2003, compared with 12.2% and 15.5% in 2002 and 2001, respectively. The program's 2003 financial position remained satisfactory. Net assets increased to $36.9 million benefiting from a $3.7 million transfer to the program.