Expanding the low-income housing tax credit (LIHTC) investor base is one of several issues in today’s market.

In 2010, there were about 22 life insurance companies investing in the tax credit market. Now, there’s probably about a half-dozen or so, according to Fred Copeman, a principal with the Reznick Group, speaking at the National Council of State Housing Agencies conference in Denver.

As investor yields have fallen from double digits to about 6 percent, interest has diminished.

A core group of large, national banks continue to make up much of the tax credit investment market. Their affordable housing investments help them meet their Community Reinvestment Act obligations.

There are about 10 or fewer investors responsible for 60 percent of the LIHTC market, estimated Beth Stohr, LIHTC director at U.S. Bancorp Community Development Corp.

Having a diverse pool of investors will help the market through its ups and downs.

Raoul Moore, senior vice president of tax credit syndication at Enterprise Community Investment, Inc., said he is seeing a bottoming out of the yields, with returns starting to inch up again.

That could help retain some of the economic investors.

Activity in the secondary market could also bring back some of those companies, said Joe Hagan, president and CEO of the National Equity Fund, Inc.

The increase in LIHTC prices to developers in the past year has also created another interesting situation. Some deals are getting higher pricing than originally expected, so they may end up with more equity than planned.

That raises the question: What should be done with the extra money?

Perhaps, it could go to improving the project, building the reserves, or eliminating another source of funding that the development was going to use. Or, should the housing finance agency (HFA) get some of its credits back to use for another project?

Should the goal be to create the best project or build as many affordable units as possible, wondered Brian Tracey, community development lending and investments executive at Bank of America Merrill Lynch.

While several different routes can be taken, the one clear message was that HFAs, developers, and their financial partners need to have a discussion about what to do if this scenario comes up. It is going to be important to have an understanding before a deal closes.