For pools with construction loans:
■Cash flows should be run in accordance with the
“Cash Flow Considerations” and “Capitalized
Interest” sections of the Standard & Poor’s
Public Finance construction criteria. (See “Public
Finance Criteria: Assessing Construction Risk”).
Credit migration scenarios
For pools with pro rata pay structures, additional cash
flow runs may be requested assuming that the highest
DSC/lowest LTV loans prepay at the earliest possible
prepayment date after any lockout period ends.
Standard & Poor’s will then review the loss coverage
levels of the remaining loans to determine the impact
on credit quality of the remaining debt obligations.Rating Pools With Variable Rate Assets Or Liabilities
Standard & Poor’s will review assets in pools with
variable rate debt and determine an appropriate
fixed rate at which to underwrite the pool loans for
debt service coverage purposes. Standard & Poor’s
will determine this appropriate fixed rate by review-
ing data from our floating rate interest rate models.
In pools where the variable rate on the assets is not
passed through to the debt holders, the rate which
Standard & Poor’s will use for individual loan
analysis may be less than the highest interest rate
over the pool life as derived from our interest rate
vector model. In that case, in order for pool debt to
receive high investment grade ratings from
Standard & Poor’s, the pool may have to provide
reserves for periods when interest rates are projected
to be above Standard & Poor’s assumed rate.
Standard & Poor’s will review pools with vari-
able rate assets and variable rate liabilities to ensure
that there is no basis point risk between the two
debt instruments. Rated certificates/bonds for pools
with fixed rate assets and floating rate liabilities
will have to have appropriate debt service coverage
levels at both the expected floating rate liability rate
and at the maximum rate. If no maximum rate on
the liabilities is provided in the documents, then
Standard & Poor’s will use its interest rate vector
models to determine an appropriate maximum rate.
In addition, Standard & Poor’s will need to review
stress cash flow runs assuming the various prepay-
ment scenarios listed above.
Issuers of pool debt obligations with variable rate
demand obligations (VRDOs) that have associated
put features may have to obtain liquidity facilities
or other comparable credit support to address
remarketing risk.Servicing And Liquidity Issues
Standard & Poor’s looks for experienced multifami-
ly servicers in rating pooled transactions. The expe-rience can be evaluated in several different ways.
Servicers other than those with Standard & Poor’s
Servicer Evaluations are certainly acceptable. Other
servicers who would be acceptable are HFAs that
have a proven track record in servicing multifamily
loan pools (as would other types of entities that
have proven track records in multifamily loan serv-
icing). Standard & Poor’s acknowledges that servic-
ing pools of bonds will not necessarily require the
same skill set as a commercial loan servicer due to
the fact that bond trustees usually handle the cash
flow requirements of a bond issue. Determining
whether the obligations’ servicer is qualified will
require an analysis of reporting requirements, cash
flow management in some transactions, special
servicing in default or workout situations and
working with trustees and issuers in bond transac-
tions. In order for a pool to receive a rating,
Standard & Poor’s must be assured that the servicer
meets Standard & Poor’s guidelines and can effec-
tively service the pool.
Standard & Poor’s always looks for liquidity in
investment grade rated bond transactions and pool
transactions are no different. Liquidity is there to
ensure that there is timely payment of principal and
interest in the event of a temporary impairment of
cash flow. Liquidity in affordable housing pooled
transactions can be provided by debt service reserve
funds on the individual bond level or by having a
rated entity agree to provide servicing advances.
The required rating level on the entity providing the
servicing advances will depend on the rating d of
the pool debt obligations.State And Local Affordable
Multifamily Housing Pool Open Resolutions
Housing finance agencies have been issuing bonds
backed by pools of affordable multifamily project
loans since the late 1960s. HFAs have historically
supported their multifamily bond issues and similar
to LIHTC projects, have avoided default situations
by utilizing their resources, including capital infu-
sions. Standard & Poor’s rates some pool financings
on the strength of the multifamily mortgage collater-
al alone; some are combined single family and mul-
tifamily pools. Some multifamily-pooled resolutions
are rated based on the general obligation pledge of a
rated HFA and not on the quality of the underlying
loans. Most of the HFA multifamily pool resolutions
are single tranche but some have multiple tranches.
In the single tranche multifamily pools, loss cover-
age for the rated bonds is typically provided by
excess mortgages or cash reserves. In resolutions
with subordinate tranches, credit support for the
higher rated tranches is provided by lower rated
tranches. Some HFAs pledge their general obligationHousing274 Standard & Poor’s Public Finance Criteria 2007