Treasury Denies Fannie's Request to Transfer Housing Tax Credits
The US Treasury Department is denying the request of mortgage giant Fannie Mae (FNM) to transfer half of the equity interests in its low-income housing tax credit (LIHTC) investments to unrelated third-party investors. After posting a $19.8bn quarterly net loss, Fannie asked its conservator, the Federal Housing Finance Agency (FHFA), to submit the request on its behalf. FHFA also requested on Fannie's behalf another $15bn draw on the Senior Preferred Stock Purchase Agreement with the Treasury, to cover Fannie’s net worth deficit as of September 30. Fannie said in a Securities and Exchange Commission (SEC) filing Monday that the LIHTC request, if granted, would allow the investors to receive substantially all the tax benefits from the LIHTC investments for a specified amount of time. At that later date, the percentage of tax benefits received by the investors would automatically reduce, while the percentage of tax benefits Fannie could receive would increase by the same amount. But the Treasury on Friday informed the FHFA and Fannie it would not consent to the proposed transaction. An Administration official confirmed to HousingWire the request is being denied. "It is our view that the proposed sale would result in a loss of aggregate tax revenues that would be greater than the savings to the federal government from a reduction in the capital contribution obligation of Treasury to Fannie Mae under the [Senior Preferred Stock Purchase] Agreement," the official said in an e-mailed statement. "In short, withholding approval of the proposed sale affords more protection of the taxpayers than does providing approval." Fannie said Monday it would consider other options, although it may be difficult to sell or transfer the LIHTC investments under current constraints and market conditions. If attempts to sell or transfer are unsuccessful, Fannie warned it may have to record an "other-than-temporary" impairment in Q409 that could reduce the LIHTC investments' carrying value to zero. As of September 30, the carrying value of Fannie's LIHTC investments was $5.2bn. "If we record an impairment, our net worth will be reduced by an amount equal to the impairment," Fannie said in the SEC filing. "Because we expect to have a net worth deficit in future periods, the impairment will increase the amount that would be requested from Treasury by FHFA on our behalf under the senior preferred stock purchase agreement." Write to Diana Golobay.