Novogradac LIHTC Working Group: Fannie Mae, Freddie Mac Should Be Allowed to Re-Enter LIHTC Market

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Affordable Housing Community Recommends Active LIHTC Role for Government Enterprises

Members of the LIHTC Working Group last month sent a letter to the Federal Housing Finance Agency (FHFA) responding to its proposed rule on Enterprises Duty to Serve Underserved Markets. The proposed regulation implements the duty for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), together known as the Enterprises, to support affordable housing preservation, rural housing and manufactured housing. In its response to the proposed regulation, the LIHTC Working Group discussed the potential of the Enterprises returning as investors in the low-income housing tax credit (LIHTC) marketplace.

Fannie Mae and Freddie Mac provided about 35 to 40 percent of LIHTC annual investment before 2008. Because the Enterprises were not investment decisions influenced by Community Reinvestment Act (CRA) considerations they demonstrated a greater interest in investing in rural areas, which tend to be outside major bank CRA assessment areas. When Fannie Mae and Freddie Mac were placed into conservatorship, their authority to invest in the LIHTC market essentially ended.

“The distressing fact is that nearly 13 percent of the nation’s affordable housing stock is now gone because of demolition, obsolescence or conversion to market-rate housing,” said Stacey Stewart, CPA, a partner in Novogradac & Company LLP’s Dover, Ohio, office who leads the LIHTC Working Group’s efforts. “One way to help turn the tide is by allowing Fannie Mae and Freddie Mac to provide low-cost financing and innovative financial products that will help build and preserve affordable homes for low-income families.”

Among its recommendations, the LIHTC Working Group proposed that the FHFA should allow the Enterprises to re-enter the LIHTC market with limitations and allow them to guarantee LIHTC investments. At present, the LIHTC Working Group is not specifying a readily identifiable market need for Fannie Mae and Freddie Mac to serve through LIHTC equity investing. However, the group said that a qualitative assessment of the LIHTC investment market should be made and FHFA should allow the Enterprises to become equity investors when appropriate to serve identified needs.

The LIHTC Working Group also recommended that the Duty to Serve credit should apply to Enterprise guaranteed LIHTC investment or LIHTC equity investment on the same terms that FHFA offers credit for mortgage finance-related investments. Furthermore, the group said that FHFA should not explicitly limit or exclude certain geographic areas or development types from being eligible for Enterprise LIHTC investment because it would undermine affordable housing preservation.

“Now celebrating its 30th anniversary, the low-income housing tax credit remains one of the most valuable tools for building and preserving affordable housing,” said Michael Novogradac, CPA, and managing partner of Novogradac & Company LLP. “Fannie Mae and Freddie Mac were significant tax credit equity players in the LIHTC program before the recession and the nation’s affordable housing leaders agree that it’s time for the FHFA to consider allowing them to once again play a role in leveraging this critical resource.”

For details and a copy of the letter, please go to The LIHTC Working Group was established by Novogradac & Company LLP in 2008 to provide a platform for LIHTC industry participants to work together to resolve technical and administrative LIHTC program issues.

Members meet monthly via conference call to provide input regarding pending action items as agreed to by the members of the group. Comments and suggestions generated during the group discussions are agreed to and submitted in writing directly to Treasury, Congress, the Department of Housing and Urban Development (HUD) and/or various state agencies. For more information, visit or email lwg(at)novoco(dot)com.

About Novogradac & Company
Novogradac began operations in 1989 and has since grown to more than 500 employees and partners with offices in San Francisco, Walnut Creek and Long Beach, Calif.; Dover, Columbus and Cleveland, Ohio; St. Louis; Boston; New York; Chicago; Austin, Texas; Portland, Ore.; Naples, Fla., Raleigh, N.C.; Iselin, N.J.; and the greater metropolitan areas of Philadelphia; Washington, D.C.; Atlanta; Detroit; Kansas City, Mo.; and Seattle.

Specialty practice areas include tax, audit and consulting services for tax-credit-assisted affordable housing, community revitalization, rehabilitation of historic properties and renewable energy. Other areas of expertise include business valuation, preparation and analysis of market studies and appraisals of multifamily housing investments and renewable energy tax credits.

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Stacey Stewart
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