Multifamily Program Performance Exhibits Continued Stability

Our ratings on HFA multifamily programs are high investment-grade; ratings range from 'A+' to 'AAA' with most (40%) being 'AA+' (chart 1). S&P Global Ratings took one rating action in 2020, revising the outlook to positive from stable on Massachusetts Housing Finance Agency's housing bond resolution. We have taken no rating actions on HFA multifamily programs in 2021.

Chart 1

Underlying loans that comprise HFA multifamily programs continue to perform well through the second year of the pandemic. At year-end 2020, the median delinquency rate for HFA multifamily programs was very low, at 1.1%. In addition, according to HFA reports, many of the loans that entered forbearance have since been removed from watchlists and/or special servicing and are making debt service payments again.

Occupancy rates have, on average, remained high, due to the eviction moratorium and very high demand for affordable units. However, the moratorium has supported occupancy levels, and therefore, tenant delinquencies are a better indicator of project performance, which, for loans in HFA portfolios, has remained stable with few exceptions. This better-than-expected performance is, in our view, largely due to prudent underwriting, active HFA program management, and loan-level surveillance. Sponsors and property managers of the underlying affordable multifamily housing loans that comprise HFA multifamily programs typically have strong financials and loan-level reserves, and a deep commitment to affordable housing. Although across the U.S. estimates of tenants at risk of eviction remain very high, data and discussions with program management indicate the threat of mass eviction is not present at HFA-financed properties.

Prudent Planning And Operations Fortify Multifamily Programs During The Pandemic

For rated HFA multifamily programs, asset-to-liability parity strengthened in 2020 from 2019 as a whole, despite substantial uncertainty and challenges. Median fiscal 2020 opening asset-to-liability parity was 144% across the rated programs, demonstrating strong overcollateralization through a combination of mortgage loans and reserves. According to cash flow analysis, through a variety of stress scenarios, programs have sufficient balance-sheet coverage to absorb S&P Global Ratings-calculated loan losses commensurate with the rating level, as evidenced by median S&P Global Ratings-adjusted parity of 129% (chart 2), up from approximately 124% a year earlier. In the decade following the financial crisis, HFAs, as a group, reevaluated their strategic plans, bolstered balance sheets, and took advantage of market conditions in ways that have strengthened overall financial positions. They have identified and reduced risk and honed their oversight and monitoring practices. As a result, their parity levels have grown, positioning HFA programs well for tougher times. Repositioning and adaptable strategies, as evidenced by performance in 2020 and into 2021, have proven effective.

Chart 2

Multifamily Issuance Topped Single Family In 2020 And 2021

In the past 20 months, multifamily issuance has been notably strong, reaching peak levels in 2020 with more than $16.2 billion in debt, surpassing single-family issuance ($13.4 billion) by $2.8 billion, the largest margin in at least 10 years (chart 3). To date, 2021 continues this trend with issuance of more than $11.1 billion as of August 2021, on pace to again exceed single-family issuance by about $2 billion. The surge has largely been market driven and a byproduct of the interest and tax rate environment.

According to the National Low Income Housing Coalition's "The Gap: A Shortage of Affordable Homes" (March 2021), the U.S. has a shortage of nearly 7 million rental housing units for extremely low-income individuals. However, addressing this shortage will never alone be the driving factor for issuance levels. Although elevated levels of multifamily issuance might continue in the near term, the reinstatement of the Federal Finance Bank FHA-HFA multifamily risk-sharing program beginning this October may prove an attractive alternative financing path for HFAs. Furthermore, proposed legislation would reduce the tax-exempt bond financing threshold needed to generate low-income housing tax credits to 25% from 50%, which might also dampen multifamily issuance volume.

Chart 3

Unprecedented Support, But Money Is Slow To Reach Tenants In Need

The Emergency Rental Assistance (ERA) program, totaling $46.5 billion in funding to assist renters and rental property owners, constitutes significant and unprecedent federal support for those affected by the pandemic. The money is provided directly to states, U.S. territories, and local governments to aid eligible households. ERA is among the largest infusions of federal housing aid in decades. However, nine months after the first round of funding and six months after the second, many renters have not received aid and as the eviction moratorium ends, are finding themselves behind on rent, facing eviction.

According to data released by the Census Bureau's Pulse Survey on Aug. 25, 2021, approximately 11 million adults are behind on rent, and 1.2 million households are highly vulnerable to eviction over the next two months, given current income and past-due conditions. While the relief funds were intended to be spent over a three-year period, latest Treasury data show that only approximately $5.1 billion, or 11% of the $46.5 billion, has made it to renters and property owners, far less than anticipated at this point. On Sept. 7, House Committee on Financial Services Chairwoman Maxine Waters (D-CA) introduced a bill to reform the ERA program that includes many provisions intended to expedite application processing, remove barriers, and improve the delivery of relief money.

The current focus from Congress and the Biden Administration to address affordable housing needs could bode well for the sector. Several legislative initiatives proposed in Congress support the creation of additional affordable housing. In mid-April, three bills were introduced in Congress aiming to address affordable housing shortages; they focused on increased funding for infrastructure, equitable development, and furthering fair housing initiatives. More recently, on Sept. 1, the White House announced additional initiatives to expand the supply of affordable housing through a series of actions by the Department of Housing and Urban Development, the U.S. Treasury, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. State HFAs, as they have for decades, are expected to be heavily involved in meeting these initiatives, using their expertise, connections in the communities, and established affordable housing programs.

If It's Not One Thing, It's Another: Programs Benefit From Strategic Preparedness

The stability and success of HFA programs are, in our view, largely due to proactive and sophisticated management. Whether it is a pandemic, natural disaster, rising insurance and construction costs, cyber attacks, or any other disruption, HFA management must be proactive in its oversight and planning, building reserves to address short-term liquidity pressure and developing business models that bolster financial performance in the long term. The most successful entities have detailed strategic plans and policies that establish best practices, monitor risk exposures, and build financial resiliency. By combining detailed, specific policies and goals with nimble management, HFA programs have been able to maintain wealth and build reserves since the Great Recession, a strategy that has paid off during the difficulties of the pandemic economy.

Related Research

• U.S Housing Finance Agency Ratings Hold Strong Despite Pandemic Pressure, Sept. 23, 2021
• Despite Weaker Loan Performance Through 2020, HFA Single-Family Program Ratings Remain Strong, Sept. 23, 2021