A recent report by Moody’s says that state and local housing finance agencies will be able to weather forbearance programs brought on by the effects of the coronavirus pandemic.
The disruption of cash flow for single-family programs will be a short-term credit negative for those HFAs, Moody’s said, while proposed eviction moratoriums and forbearance on rental projects also will lead to cash flow disruptions for multifamily programs.
“Nevertheless, HFAs’ financial strength can comfortably sustain the negative impacts, and our stable outlook for the sector remains appropriate,” Moody’s stated.
Analysts cited two other areas of concern for cash flow in single-family programs: a “substantial” drop in investment income after the Fed cut interest rates, and elevated interest-rate resets on HFAs’ variable-rate debt (VRDOs).
“Mortgage payment deferrals will affect only whole-loan programs, which represent about 70% of HFA single-family portfolios, limiting the negative impact on the agencies,” Moody’s stated. “Programs with mortgage-backed securities (MBS), by contrast, are guaranteed by Ginnie Mae (GNMA), Fannie Mae or Freddie Mac (GSEs). MBS master servicers are required to advance on behalf of borrowers in the event of delinquency, and GSEs and GNMA will likely cover any deficiency if master servicers fail to do so.”
About 84 percent of the single-family portfolio is insured, by government agencies such as the Federal Housing Administration, Veterans Affairs or Department of Agriculture Rural Development, or by private insurers.
“To qualify for GSEs’ payment deferral programs, borrowers must have faced a short-term financial hardship which caused them to miss up to two months of mortgage payments, and must have demonstrated the ability to catch up in full after two months,” Moody’s stated. “GSEs will allow certain borrowers to make the deferred mortgage payments at the end of their mortgage or when they sell their house. Relief programs being considered by HFAs may allow for payment deferrals of more than two months.”
Although multifamily programs also are expected to face cash flow disruption, Moody’s said most mortgage loans in the program are insured or guaranteed, “which eliminates the risk of nonperformance.”
“HFAs’ strong financial and cash positions will mitigate the short-term cash flow disruption,” Moody’s stated. “HFA single-family programs are entering a challenging period in a strong financial position.”
Moody’s said its stress analyses were strong, looking at the potential impact of elevated VRDO resets for as many as six months, but that the scenario was unlikely.
“The negative impact on HFA margins will likely be steep, but our stable sector outlook remains appropriate,” Moody’s stated. “HFAs are likely to have enough liquidity and financial resources to mitigate the short-term and temporary cash flow disruption caused by the coronavirus pandemic, so the stable outlook for the sector remains appropriate at this time.”