Should Fannie Mae and Freddie Mac re-enter the low-income housing tax credit (LIHTC) market?
That’s the big question posed by the Federal Housing Finance Agency (FHFA) in a request for public comments on a rule regarding the GSEs’ “Duty to Serve Underserved Markets.”
Before they were seized by the federal government in September 2008, the government-sponsored enterprises (GSEs) were an enormous part of the LIHTC equity world, at one time constituting an estimated 40% of the overall market. But once they placed under conservatorship, they stopped investing in housing credits, which left the larger LIHTC ecosystem in a tailspin at the time.
But in a request for public comments due March 17, FHFA asked whether the GSEs should be allowed re-entry into a market they once dominated. And the comments of approval poured in from organizations such as the National Council of State Housing Agencies, Low Income Investment Fund, Local Initiatives Support Corp., and the National Low Income Housing Coalition. (You can find the letters of comment here).
And of course, the GSEs themselves were chomping at the bit to have their say on this pressing matter.
In an official letter, Jeffrey Hayward, executive vice president of Fannie Mae’s multifamily division, had this to say about the organization’s desire to re-enter the market:
Fannie Mae respectfully submits that it should be permitted to resume making LIHTC equity investment—because its presence will enhance the stability of the LIHTC program by serving as a reliable source of capital for affordable housing in diverse economic cycles and markets. Fannie Mae, as an equity investor, will not displace private funding but will instead seek to balance the distribution of equity capital across the LIHTC market to include those segments of the market that continue to suffer from limited liquidity.
For its part, Freddie Mac’s vice president and deputy general counsel Wendell J. Chambliss weighed in on the proposed rule with very similar sentiments as Hayward's:
In addition to supporting affordable housing constructed or preserved through the LIHTC program, the Enterprises should also be permitted to enter the market as a third party guarantor of LIHTC funds, which has not been previously approved … Accordingly, we recommend that FHFA specify in the final Duty to Serve regulation that the Enterprises are permitted—and encouraged —to fully engage in LIHTC support and that activities in support of LIHTCs will be eligible for Duty to Serve credit.
The good news for the affordable housing industry is that the majority of letters seem overwhelmingly positive in favor of giving the GSEs’ a green light for an on-ramp into the LIHTC highway.
To be clear, the GSEs aren't looking to be world beaters again. One current GSE executive, who spoke on the condition of anonymity, said they're not looking to dominate the market again by any means but just to be a presence.
The ball is now in FHFA’s court, but its willingness to listen, and the outpouring of support from the housing community for this activity, is more than an encouraging sign.