Moody's Assigns Aa1 Rating to Proposed California Multifamily Housing Revenue Bonds

Strategic Insights -

The proposed California Municipal Finance Authority Multifamily Housing Revenue Bonds (Fannie Mae MBS Secured) 2025 Series A, totaling $14.35 million, has been assigned a Aa1 rating by Moody's Investors Service. The rating is based on the high credit quality of the Federal National Mortgage Association (FNMA) mortgage-backed security (MBS) and a strong legal structure where principal and interest are passed through to bondholders semiannually. Fannie Mae will provide a forward commitment to guaranty the permanent financing by issuing the MBS after the construction phase is complete.

Key Takeaways:

  • The rating of this forward MBS secured transaction is based on the high credit quality of the Federal National Mortgage Association (FNMA, Aa1 stable) mortgage-backed security (MBS) and strong legal structure.
  • The transaction has a strong risk mitigation strategy, including a positive net revenue and a build-up of funds in the revenue account that cannot be released from the trust unless payments are clearly limited to investment earnings.
  • The structure of the transaction reduces the potential for administrative error by the Trustee and has additional features that reduce the deal's complexity, including surrogate pay negotiations, cash flows assume a 0% interest rate, and all fees associated with the deal are paid outside of the trust accounts.
  • The bonds are secured by bond proceeds and lender funds held by the trustee, with security shifting to Fannie Mae's guarantee of timely principal and interest payments upon MBS acquisition.
  • The bonds are expected to be delivered in June 2025 with a fixed interest rate, with eligible funds covering negative arbitrage until MBS acquisition.
  • The bond program maintains a minimum 100% asset-to-debt ratio and is expected to increase through maturity.

Statistics:

  • $14.35 million: total amount proposed for the California Municipal Finance Authority Multifamily Housing Revenue Bonds (Fannie Mae MBS Secured) 2025 Series A.
  • 0%: assumed interest rate for cash flows.
  • 0%: assumed reinvestment rate for non-Treasury funds.
  • June 2025: expected delivery date for the bonds.
  • 100%: minimum asset-to-debt ratio maintained by the bond program.

Sources:

  • Moody's Investors Service
  • US Standalone Housing Bonds Secured by Credit-Enhanced Mortgages

+ Published in October 2024: available at https://ratings.moodys.com/rmc-documents/430702

  • US Pre-refunded and Escrow-backed Transactions

+ Published in October 2024: available at https://ratings.moodys.com/rmc-documents/430703

+ Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.