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GSEs Boost Their Investment in Safe and Affordable Housing

In a move to support the nation’s underserved housing markets, the Biden Administration and the Federal Housing Finance Agency (FHFA) have announced that Fannie Mae and Freddie Mac (the GSEs) can each invest up to $850 million annually in the Low-Income Housing Tax Credit (LIHTC) market as equity investors. Previously, each GSE was limited to $500 million of investment annually in the LIHTC market.

Within this $850 million annual funding cap, any investments above $425 million each year are required to be in areas that have been identified by FHFA as markets that have difficulty attracting investors.

Today’s move by the FHFA marks an increase in the amount of investments under the cap that must be made in targeted transactions that either support housing in Duty to Serve-designated rural areas, preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives.

"The severe shortage of affordable housing in America requires coordinated government action,” said Acting Director Sandra L. Thompson. “As part of the federal government's response, FHFA is instructing Fannie Mae and Freddie Mac to boost the housing supply in communities across the country by significantly increasing their Low-Income Housing Tax Credit investments and by expanding opportunities for local families to access affordable homeownership and rental housing. In addition, FHFA will begin to study the interaction between exclusionary zoning and our regulated entities.”

As supply constraints have intensified, large investors have stepped up their real estate purchases, including of single-family homes in urban and suburban areas. One out of every six homes purchased in Q2 was acquired by investors, and reports indicate that in some markets, that number is one in four. Within investor purchases, typically more than 35% of purchases are made by investors that own more than 10 properties. Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home. At the same, these purchases are unlikely to meaningfully boost supply in the lower-cost portions of the rental market, as investors charge more for rent to recoup higher purchase costs.

The LIHTC is the primary government program available to address the shortage of affordable rental housing through the creation and preservation of affordable units in underserved areas throughout the country. FHFA will continue to evaluate the GSE’s participation in the LIHTC equity market on an ongoing basis.

In addition to the FHFA raising the LIHTC for the GSEs, the Biden Administration has also announced the following goals to boost affordable housing:

  • Boosting the supply of manufactured housing and two- to four-unit properties by expanding financing through Freddie Mac. Along with Fannie Mae’s and the Federal Housing Administration’s (FHA) existing policies, these steps will enable more Americans to purchase homes, and increase the availability of rental units throughout the country.
  • Make more single-family homes available to individuals, families, and non-profit organizations–rather than large investors–by prioritizing homeownership and limiting the sale to large investors of certain FHA-insured and HUD-owned properties, in addition to expanding and creating exclusivity periods in which only governmental entities, owner occupants, and qualified non-profit organizations can bid on certain FHA-insured and government-owned properties.
  • Work with state and local governments to boost housing supply by leveraging existing federal funds to spur local action, exploring federal levers to help states and local governments reduce exclusionary zoning, and launching learning and listening sessions with local leaders.

Since its return to the LIHTC market, Fannie Mae's $1.8 billion worth of commitments have supported the creation and preservation of thousands of affordable units. The LIHTC program accounts for a majority of all affordable rental housing created and preserved in the U.S. The increase in the cap allows Fannie Mae to maintain its commitment to supporting the growing needs for quality affordable housing for the nation's renters.

"LIHTC investments are one of the most impactful tools we use to create and preserve affordable housing in underserved markets. Increasing the annual cap allows us to better address the affordable housing supply shortage for low- and very low-income families," said Michele Evans, EVP and Head of Multifamily, Fannie Mae. "Since our return to the LIHTC market in 2018, we have been able to better serve the multifamily market and play an integral role in addressing our nation's affordable housing crisis."

Debby Jenkins, EVP and Head of Multifamily for Freddie Mac, said, “Freddie Mac has built a robust LIHTC Equity investment program, with more than 120 investments in 26 states and Puerto Rico and Guam since 2018. This work has supported the preservation or creation of thousands of units of rental housing, meeting the needs of underserved communities throughout the country. FHFA’s announcement today will allow us to build on this work in the years to come and do so much more to meet the tremendous need for additional safe and affordable housing.”

Some of Fannie Mae’s notable LIHTC investments made through June 30, 2021, include the following properties:

  • Talbot Court in Greensboro, North Carolina which will provide 56 units, of which six are designated for disabled or homeless residents. Twenty-five percent of this property's units will be restricted to residents who earn 30% of the area median income (AMI).
  • Wellington North in Clarkson, New York will provide 50 units for senior residents with eight designated for disabled tenants. More than a third of this property's units will be offered to residents who earn 30% of the AMI or less.
  • Apache Manor & Sandy Park Apartments in Tulsa, Oklahoma will facilitate Rental Assistance Demonstration conversion of 318 public housing units in two properties. The Housing Authority of the City of Tulsa will provide supportive services to all residents.
  • Beachwinds Apartments in Narragansett, Rhode Island will offer 104 units for senior and disabled residents with supportive services.

"FHFA's increase in the cap allows us to continue to play a leadership role in supporting underserved markets and projects, including rural, supportive housing developments, and disaster impacted areas," said Dana Brown, VP, Multifamily for Fannie Mae. "We are a steady and reliable presence in the LIHTC equity market. This consistent support was evident over the past year when pandemic-related factors disrupted many markets and economic activities. Throughout this challenging period, Fannie Mae continued its steady pace of LIHTC investments month after month, assuring our LIHTC market partners that we planned to continue to invest throughout 2020 and beyond."

Some of Freddie Mac’s LIHTC equity investments include the following:

  • Freddie Mac’s investment in Hilltop Apartments will support the occupied-rehab of an existing 72-unit multifamily property located in Madison, Florida. The property is comprised of 15, one-story residential buildings and one community building. All 72 units will be set aside for households with incomes at or below 40% and 60% of AMI. Four units are set aside for special needs households targeting a homeless person, a survivor of domestic violence, a person with a disability, and a youth aging out of foster care.
  • Freddie Mac’s investment in Mamie Nichols Townhomes supports the new construction of a scattered-site multifamily development in the Point Breeze neighborhood of South Philadelphia. Eleven efficiency and one-bedroom units will be available for veterans with special needs, while 22 two- and three-bedroom units will be available to low-income families. All 33 units are rent restricted to households at or below 20% to 60% of AMI.
  • Freddie Mac’s investment in Yurok Homes #3 supports the new construction of 36 units of multifamily housing located 10 miles from Eureka, California on land owned by the Yurok Indian Housing Authority (YIHA). The development will include 12 two-story structures featuring flats, town homes and rental homes. The property will target families earning no more than 30% to 50% of AMI. All 36 units will benefit from a tribal subsidy allowing tenants to pay 25% of their income toward rent.

"Increasing the amount each Enterprise can invest in the LIHTC market, especially in areas that have difficulty attracting investors, will help expand the supply of affordable housing across the country," added Thompson. "Today's announcement is a part of FHFA's continued efforts to help alleviate America's affordable housing shortage."

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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