Comment Detail

Comment

70 Federal Street
Boston, MA 02110
Tel: (617) 850-1000
Fax: (617) 850-1100

Guilliaem Aersten
Chairman

Joseph L. Flatley
President and CEO

March 17, 2016
Alfred M. Pollard, General Counsel
Federal Housing Finance Agency
Constitution Center
400 Seventh Street, S.W.
Washington, D.C. 20219
Re: RIN 2590-AA27
Enterprise Duty to Serve Underserved Markets – Proposed Rule
Dear Mr. Pollard:
Thank you for allowing participants in the affordable housing industry to submit comments regarding the Enterprise’s Proposed Duty to Serve Underserved Markets.
Massachusetts Housing Investment Corporation (MHIC) is a 25-year old private, mission driven non-profit organization that has been active in community development using LIHTC, NMTC, and debt. We are part of the National Association of State and Local Equity Funds (NASLEF) which is separately submitting comments on behalf of the organization. The Enterprises’ were both significant key LIHTC investors with MHIC; Fannie Mae from 1993 – 1996 and 2001 – 2006, and Freddie Mac from 1993 – 2003 and in 2006. We are submitting comments only to questions 41 – 45 regarding the Proposed Enterprise Duty to Serve Underserved Markets.
41. Should FHFA allow the Enterprises to resume LIHTC equity investments? Would the resumption of LIHTC equity investments by the Enterprises benefit the financial feasibility of certain LIHTC projects or would it substitute Enterprise equity funding for private investment capital without materially benefiting the projects?
The current LIHTC market is imbalanced with more demand for credits than supply. However, additional investor equity available over the long term would have beneficial impact if implemented in a prudent manner. As the Enterprises abruptly exited the market in 2008, a return as investors should be evaluated and balanced against the present need of additional investor equity. Such evaluation could be done on a periodic basis. Financial feasibility is determined by underwriting standards and best practices already ingrained in the industry, so it is unclear that the Enterprises would benefit the financial feasibility of certain projects. This is particularly true when investors are in a multi-investor fund, which is the format that the Enterprises used with MHIC. We support the Enterprises resuming investment in multi-investor funds.
42. If FHFA allows the Enterprises to resume LIHTC investments, should FHFA limit investments to support for difficult to develop projects in segments of the market with less investor demand, such as projects in markets outside of the assessment areas of large banks or in rural markets or for preservation of projects with expiring subsidies? Are there other issues that FHFA should consider if limiting the types of LIHTC projects appropriate for equity investment by the Enterprises?
From a practical perspective, it would be very difficult to limit Enterprise investment to specific geographic boundaries. This is especially true in the context of a multi-investor fund with multiple investments. MHIC has a state-wide fund in Massachusetts, and by mission we seek out investments in secondary/rural markets that may be less served by large CRA motivated banks. [Note: we also seek out smaller, complex urban investments that other for-profit syndicators with less local market knowledge may not pursue]. Thus, an investment by the Enterprises in and MHIC multi-investor fund would cover a broad geographic market which would be beneficial as many investments would be in markets not considered primary CRA areas.
43. If FHFA permits the resumption of LIHTC equity investments, should Duty to Serve credit be provided only for LIHTC equity investments in projects with expiring subsidies or projects in need of refinancing, or should Duty to Serve credit also be given for LIHTC investments in new construction with regulatory agreements that assure long-term rental affordability?
From a practical perspective, especially in the context of a multi-investor fund, it would be very difficult to limit Enterprise investments to specific categories of projects. Thus we see no benefit to such a proposal. Furthermore, it is the state Allocating Agency, under the specifics of the state’s Qualified Allocation Plan, which awards the tax credits and other funding capital. By definition, all awardees are perceived as equally critical to meeting the housing needs of the market.
44. If FHFA allows the Enterprises to resume LIHTC investments, should FHFA limit such investments to those that promote residential economic diversity, for example, by investing in LIHTC properties located in high opportunity areas, as proposed to be defined in §1282.1, to address concerns about the disproportionate siting of LIHTC housing (non-senior) in low-income areas and the effect of residential segregation?
We see no value to having FHFA limit investments in this way. As stated under 43 above, the state agency allocates tax credits and other capital, and the investor market responds. However, investments “that promote residential economic diversity” need not be restricted solely to LIHTC investments. We encourage FHFA, in fact, to consider broadening the application of the Duty to Underserved Markets to include other gap equity products (even non-tax credit) that have been structured recently, and which are now critically needed in the market to fund decreases that have occurred in other Federal and State funding programs, and the increased construction costs of preserving and creating affordable housing in a highly regulated market. The Enterprises could play a pivotal role in providing such non-tax credit equity gap capital.
45. Should FHFA consider permitting the Enterprises to act as the guarantor of equity investments in projects by third-party investors provided any such guarantee is safe and sound and consistent with the Enterprise’s Charter Act? If so, what types of guarantees should the Enterprises offer?
The guaranteed market is now a very small part of the industry, as most guarantors lost their ‘status’ in the financial crisis – a situation which would likely recur in another market upheaval. The addition of a guarantor also adds another level/layer of review and costs that impacts the efficiency of the market. And, “any such guarantee is safe and sound” would suggest boundaries to the type of risk that an investment guaranteed by an Enterprise could consider. However, in the long term context of the market, the potential to attract new investors who would only consider a guarantee structure should not be prohibited.
Again, thank you for allowing us to submit these comments.
Sincerely,

Peter Sargent
Director of Capital Development
Massachusetts Housing Investment Corporation
70 Federal Street – 6th Floor
Boston, MA 02110