The Obama administration has blocked Goldman
Sachs’ bid to buy a significant amount of
low-income housing tax credits (LIHTCs) from struggling
Fannie Mae, according to several sources.
While a sale may have cut the government costs related
to Fannie Mae, there was reportedly concern that it would
have drained more revenue as Goldman used the tax credits
against its profits.
In a recent third-quarter report to the Securities and
Exchange Commission (SEC), Fannie Mae said it had entered
into a nonbinding letter of intent to transfer equity
interests in its LIHTC investments. “Under the
terms of the transaction as currently contemplated, we
would transfer to unrelated third-party investors
approximately one-half of our LIHTC investments for a price
that exceeds their current carrying value,” said
As of Sept. 30, the carrying value of Fannie
Mae’s LIHTC investments was $5.2 billion.
The Treasury Department on Nov. 6 notified Fannie Mae
that it is not consenting to the transaction.
“We are evaluating whether Treasury’s
decision changes our prior determination that we continue
to have the intent and ability to sell or otherwise
transfer our LIHTC investments for value,” said
Fannie Mae in an SEC filing Monday. “While our
conservator has directed us to continue to explore options
to sell or transfer these investments for value consistent
with our missions, we believe this will be difficult given
current constraints and market conditions.”
The company went on to say, “While we have not
made any decision with respect to whether an impairment of
these assets is required under generally accepted
accounting principles, if we are unsuccessful in selling or
otherwise transferring these investments for value, we are
likely to record additional other-than-temporary impairment
in the fourth quarter of 2009 that could reduce the
carrying value of our LIHTC investments to
Fannie Mae does not identify Goldman Sachs or any other
firm as the buyer of its LIHTCs, and Goldman Sachs has been
mum on the deal.
The Wall Street Journal reported that Warren
Buffett’s Berkshire Hathaway, Inc., had joined
Goldman Sachs in the bid for the tax credits.
A sale of LIHTCs by Fannie Mae or Freddie Mac has raised
worries in the affordable housing industry that it could
hurt the overall LIHTC market by sapping investor money
from new investments. The market has seen a sharp drop in
capital in the past year.
There are two key questions to evaluate from the public
policy standpoint, said David Smith, CEO of CAS Financial
Advisory Services, a Boston-based financial services
company that specializes in multifamily transactions, last
week. One, does it help improve the demand-supply
imbalance, and two, is it good for taxpayers?
From the point of the affordable housing industry, would
a trade reduce the need for Goldman Sachs or another firm
to buy housing tax credits in the primary market?
“If this trade did not go through, would
Goldman Sachs need to buy retail tax credits elsewhere? Or
is this purely a discretionary purchase on a yield basis?
If it is the latter, then it probably doesn’t
reduce demand and wouldn’t be seen as worsening
the supply-demand imbalance,” Smith said before
news of the Treasury’s rejection of a deal.
“However, from the government side of the
equation, what would happen to the tax credits in the
absence of a sale? Would Treasury cancel them? Would Fannie
Mae claim them against future tax credits, or would
somebody else buy them?”
It makes sense for the government-sponsored enterprises
to be interested in a sale, according to Smith.
“If I were a manager at Fannie Mae, and I have
an asset of low value to me right now, I could be remiss in
my duties if I don’t attempt to increase the value
of my assets,” he said.
Stories in The Wall Street Journal
don’t bode well for the transaction, Smith said.
“It seems likely that it would put pressure on
Treasury to reject the deal. Certainly, it’s hard
to see that story helping the case for the