Fitch Affirms Vermont Housing Finance Agency's 1990 Single-Family Housing Bond Resolution at 'A+'

Fitch Ratings has affirmed the 'A+' rating assigned to $167.2 million outstanding bonds issued under the Vermont Housing Finance Agency (VHFA) 1990 Single-Family Mortgage Program Bond Resolution.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of VHFA payable solely from the revenues, loans, additional security reserve deposits and other funds and property pledged as provided in the resolution.

KEY RATING DRIVERS

OVER-COLLATERALIZATION: As of June 30, 2013, the program had a sound asset parity ratio of 109%.

SEASONED LOAN PORTFOLIO: The loan portfolio consists of seasoned loans originated between 1990-2008, with 50% of the portfolio privately insured, 12% insured by Rural Development, 32% uninsured with loan-to-value ratios of 80% or lower, and 6% securitized mortgage-backed securities, minimizing potential loss exposure.

MANAGEMENT OVERSIGHT: Vermont Housing has a successful history of administering its single-family programs; total actual losses on the portfolio are low at $7.9 million over a period of 23 fiscal years, which is less that 1% of total loans originated.

RATING SENSITIVITIES

SUBSTANTIAL INCREASES IN FORECLOSURES: If mortgage loan foreclosures increase significantly and result in increased losses to the program, this could have an adverse effect on the program's net assets, which could result in negative rating action.

CONCENTRATED MORTGAGE INSURANCE EXPOSURE: The program relies on one private mortgage insurance provider for approximately 50% of the whole loans in the portfolio to pay claims if those loans should default. Fitch does not rate the insurance provider and expresses no opinion as to its credit quality. If this insurer fails to pay claims on foreclosed loans it could negatively affect the program's overcollateralization level.

REMOVAL OF EXCESS FUNDS: Equity can be withdrawn from the indenture but an asset parity ratio of 101% must be maintained before funds can be removed, as per supplemental indentures. Removal of excess funds may impede the program cash flow's ability to absorb assumed loan losses and maintain asset parity ratios that are appropriate for the current rating level.

CREDIT PROFILE

The program currently maintains 49% of its outstanding debt as variable rate demand bonds which are entirely swapped to a synthetic fixed rate. The percentage of variable rate debt has increased as the total amount of outstanding bonds has been reduced for this program. All of the liquidity facilities for the variable rate demand bonds are with one provider, TD Bank (rated 'AA-/F1+') and expire at various dates from 2014 to 2016. VHFA has been successful in securing extensions to existing liquidity facilities at affordable levels as expiration dates have come due. Fitch views this as a positive credit factor, since the reduced liquidity expense affects the program's overall financial position.

The Vermont Housing Finance Agency has a successful history of administering its single-family programs. Actual losses on the portfolio are low at $7.9 million (representing 0.7% of loans originated) over a period of 23 fiscal years.

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

Applicable Criteria and Related Research:

--'Single Family Mortgage Program Rating Criteria', dated July 25, 2013,

--'Revenue-Supported Rating Criteria' June 3, 2013.

Applicable Criteria and Related Research:

State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria

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

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=813194

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