NJ housing agency defies Moody's 'junk' rating: Update

Moody's Investors Service has cut bond ratings on $53 milllion of New Jersey Housing and Mortgage Finance Agency bonds by one notch, to Ba1 -- junk-bond status, off-limits for some insurance companies and other fastidious investors -- from its previous low-investment-grade rating of Baa3. Moody's also warned, in a report by a team led by analyst Dmitriy Plit, that "the rating outlook remains negative" and it may lower the rating again. The NJ HMFA bond series is 2004A.

In his report to Moody's clients, Plit blamed "a steep decline in 2013 capital funding to the Salem Housing Authority," and added that pressure on the federal housing budget "may result in further declines in capital fund appropriations," raising more doubts about the agency's ability to repay the bonds. Low ratings typically force borrowers to pay more to get investors to buy their bonds.

UPDATE: State spokeswoman Lisa Ryan responds: "The New Jersey Housing and Mortgage Finance Agency has never failed to make a bond payment and anticipates it never will."

She also sent an excerpt from Standard & Poor's Dec. 2013 credit rating report on the agency's general-obligation debt, from Page 10. It doesn't address the Salem County problem, or what the agency is going to do about low federal funding. It does give agency managers points for trying::

"We believe that the agency's current management team has performed remarkably well in an environment where many of the obstacles it has faced have been beyond its control," said S&P, citing the housing-market collapse, the recession, reluctant lenders, high New Jersey housing prices, and the slow recovery, "particular in New Jersey."

"In addition, New Jersey is a litigious state with a notoriously long judicial foreclosure process, which was further aggravated by the foreclosure moratorium imposed by the state in 2010 (later lifted in late 2011).

"Despite these challenges, we have noted a significant improvement in the agency's asset management, which has become more proactive in handling distressed properties, and in its disclosure practices, which have become more timely and comprehensive, under the current management regime... We believe that these practices will lead to sustainable improvement in the agency's loan performance and financial strength."