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On December 21, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will each be allowed to invest up to $1 billion annually (originally $850 million) in low-income housing tax credits (LIHTCs), beginning in 2024. The Enterprises will also adjust their LIHTC investment policies to ensure their investments only support projects that 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… this announcement provides additional stability for investments in this critical segment of the housing market,” said FHFA director Sandra L. Thompson.

Within the new $1 billion investment cap, any investments above $500 million in a given year must be in transactions FHFA has identified as having difficulty attracting investors. This increases the amount of investments under the cap that must 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.

Ensuring 30-year affordability periods by waiving the qualified contract provision.

The FHA also announced that it would require the government-sponsored enterprises (GSEs) to only make LIHTC investments in projects for which the owners have waived the right to a qualified contract, thereby ensuring such properties remain affordable for the full period outlined in the developments’ extended use agreement.

The National Council of State Agencies (NCSHA) annual survey of state HFAs found that, as of the end of 2021, more than 100,000 units nationwide had been lost to the affordable housing stock due to owners using the qualified contract loophole to convert their properties to market rate prior to the end of the affordability period outlined in those projects’ extended use agreements, with approximately 10,000 units lost each year.

FHFA will continue to evaluate the Enterprises’ participation in the LIHTC equity market on an ongoing basis.