|Moody’s Investors Service (Moody’s) recently-released HFA financial medians report concludes that HFA financial profiles demonstrated solid improvement in FY 2014. The report predicts that national wage growth and lower unemployment, which have caused an increase in household formations, will enable HFAs to retain their strong financial positions in the future. The report also notes that if and when the Federal Reserve increases interest rates, HFA financial portfolios should receive an additional boost as HFA products become more attractive than conventional loans and HFA investments generate increased earnings.
HFAs’ program asset-to-debt ratio was a significant factor in Moody’s positive evaluation of HFAs’ financial standing. According to the report, HFAs’ asset-to-debt levels reached an all-time high of 1.33 times, a 10 percent increase since 2010 and a 3 percent increase since 2013. The report highlights a decline in outstanding bonds as the key reason for the record asset-to-debt ratio. Of the 49 state HFAs audited for this report, 47 experienced declining outstanding debt, with the total bonds outstanding for all HFAs falling to $93 billion, down 7 percent from 2013 and 26 percent below the peak in 2010.
The report credits improved operating margins as a contributing element in the positive financial outlook of state HFAs. HFAs’ operating margins reached a post-crisis high of over 12 percent in FY 2014, which marked the fourth straight year of growth in HFA operating margins. Moody’s attributes the growth to new loan originations and favorable market conditions, specifically, low interest costs and low liquidity fees.
Moody’s also highlights the constant improvement of HFAs’ net interest spread since 2010. Net interest spread, which reached an all-time high for HFAs of 29 percent, measures the ability of assets to generate enough spread to cover bond interest expenses. Moody’s believes that the strong growth of HFAs’ net interest spread in 2014 indicates that strong margin levels will continue in the near future.
To view Moody’s report, please follow this link and click on the "Purchase Report" button.