The state housing finance agency (HFA) sector was assigned a “stable” outlook for the second consecutive year by Moody’s.

The outlook is driven by improving revenue margins (net revenue/total revenue), which reached 11 percent 2013.

“We anticipate that HFA margins will increase incrementally in 2015 as revenue from loan sales continues increasing, full spread mortgages drive revenue growth, and loan portfolio performance continues to improve,” says Rachael Royal McDonald, a Moody’s vice president and senior analyst.

Moody’s expects margins to remain below the pre-crisis peak of 15 percent.

“Most HFAs succeeded in ramping up their secondary market activity by 2013, so we expect that most of the financial gain from this activity has already been realized,” says the firm. “Therefore, increases in margin will be primarily driven by continued run-off of the bond portfolios and the economic benefits of recent refundings. Furthermore, higher interest rates would drive margins upwards as HFAs realize more income from investments”.

An additional factor behind the stable outlook is the ability of mortgage loan revenues, the most stable HFA long-term revenue source, to cover general and administrative expenses. While the ratio of loan revenues to expenses has declined significantly since 2008, the ratio remains healthy at 3.6x in 2014.

“However, this ratio has declined significantly since 2008 due to run-off of mortgage loan portfolios, and a further decline below 3.0x would be a risk factor for the sector,” according to Moody’s in its new report, 2015 Outlook—U.S. State Housing Finance Agencies: Strong Margins Drive Stable Outlook,

Moody’s also notes that HFA portfolio performance continues to strengthen, which will bolster both current and future mortgage loan interest income. A year-over-year decline of more than 4 percent in single-family delinquencies will both reduce loan losses and help steady monthly mortgage loan revenues. Delinquencies in the 60-to-89 day category also dropped to its lowest percentage in five years.