State housing finance agencies (HFAs) are poised to maintain healthy financial profiles this year, according to Moody’s Investors Service.

“The housing market improvements in recent years should have a carryover effect, where strong loan performances and increases in home prices continue to drive HFA loan quality and revenues,” says Moody’s in its new report, State Housing Finance Agencies—U.S.: Stronger Loan Performance and Pent-Up Demand Will Benefit HFAs in 2016.

David Teicher
David Teicher

Increased home prices will help reduce losses on loans in bond programs, leading to higher revenues which will help support asset levels of HFAs. Moody’s believes HFA financial health will continue even if an economic slowdown or a modest housing market decline occurs.

Home purchases through HFAs are also likely to increase from a rising number of millennials and other first-time homebuyers taking advantage of HFA down-payment assistance programs in the current low unemployment and low interest rate environment that is making homeownership more affordable.

“For HFAs that service loans, the recent delinquency declines should translate into lower expenses and higher profitability as servicing and foreclosure costs fall,” says David Teicher, a Moody’s senior vice president.

Moody’s says HFAs have also benefited from the ongoing decline in seriously delinquent loans. Data from the Mortgage Bankers Association show that the percentage of seriously delinquent Federal Housing Administration (FHA) insured fixed-rate mortgage declined to 4.64% in the fourth quarter of 2015, the lowest level in a decade. FHA loans share many of the same characteristics as HFA loans.

“Origination of FHA-insured loans increased in 2015 in part due to the recent reduction in the cost of FHA insurance premiums. This suggests HFA originations should similarly increase in 2016 since many HFA borrowers receive FHA insurance,” Teicher says

State HFAs typically originate large percentages of FHA-insured single family mortgage loans and either hold them or sell them into the secondary market.