The Federal Housing Finance Agency (FHFA) recently announced an increase in the annual investment cap for the government-sponsored enterprises (GSEs) for the Low-Income Housing Tax Credit (LIHTC) market. Beginning this year, Fannie Mae and Freddie Mac will be allowed to invest up to $1 billion each as equity investors.
Previously, the GSEs were limited to $850 million each for annual LIHTC investments. By increasing the cap, the FHFA seeks to ensure Fannie Mae and Freddie Mac continue to play a consistent role in supporting the creation and preservation of affordable housing, according to an agency press release.
The GSEs also will adjust their LIHTC investment policies to ensure these funds only go toward supporting projects designed to remain affordable for the entire 30-year period intended by the program.
“Since restarting their LIHTC investments in 2018, the enterprises have furthered their ability to create and preserve affordable housing, especially in areas that have difficulty attracting investors,” FHFA Director Sandra Thompson said in the release. “Today’s announcement provides additional stability for investments in this critical segment of the housing market.”
The LIHTC is the primary federal government program designed to address the shortage of affordable available rental housing by creating and preserving affordable units in underserved areas throughout the country. The FHFA said it will continue to evaluate the GSEs’ participation in the LIHTC equity market indefinitely.
Any GSE investment exceeding $500 million in a given year must be put toward projects specifically identified by FHFA as needing to draw in more investors. This requirement is intended to drive up the number of investments under the cap required to support housing in rural areas qualifying for the agency’s “duty to serve” designation. It also is intended to help preserve, support and/or provide affordable housing, mixed-income housing, supportive housing or meet other affordable housing objectives.
The GSEs may only invest in LIHTC projects in which the qualified contract provision is waived. This requirement is intended to ensure the 30-year affordability period envisioned by the LIHTC program is met.