Comment Detail

Comment

Fannie Mae, 2023 Rural Housing, Objective # 1: Invest in LIHTC properties in rural areas

Thank you for the opportunity to comment on Fannie Mae’s request to amend its 2023 Duty to Serve (DTS) Plan by modifying the Low-Income Housing Tax Credit (Housing Credit) investment objective in the rural housing market. In its request, Fannie Mae states this modification would continue in future DTS plans.

New Hampshire Housing Finance Authority (NH Housing) is New Hampshire’s state housing finance agency and is the State’s Housing Credit allocating agency. We see first-hand the need for rural housing, and the essential value of the Housing Credit. We also see the challenges rural housing developers have in securing Housing Credit investors. The projects are small (20-40 units), in more remote areas, and the projects are not located in areas where banks need CRA investments. This means the credit pricing in rural areas is significantly less than credit pricing for urban projects in southern New Hampshire (rural projects generally see pricing of about 82 cents versus 94 cents for projects in southern NH).

The reality is that most Housing Credit investors do not want to invest in rural housing. That is why multi-investor funds, which Fannie Mae invests in, are crucial for rural housing. These funds that include Fannie Mae are trusted investors that provide capital to much-needed rural projects. Without these funds, rural developers might not be able to find an investor or, if they find an investor, the developer would receive lower credit pricing. In New Hampshire, our rural developers often work with Evernorth, a nonprofit syndicator that works in New Hampshire, Maine and Vermont. Fannie Mae has been a key investor in Evernorth’s multi-investor funds, and thereby a key investor in rural housing in New Hampshire.

The FHFA DTS regulations charge the Government-Sponsored Enterprises (GSEs) with taking steps to bring capital to underserved markets, including rural multifamily housing. Multi-investor funds are a critical tool for reaching rural markets. Fannie Mae and Freddie Mac have affirmative DTS obligation to invest in rural housing, but we note that for several years Freddie Mac has not been a LIHTC investor in New Hampshire. FHFA should embrace the multi-investor platform as a tool to reach rural markets. FHFA should work to assure that the GSEs increase, rather than decrease, their commitment to providing LIHTC equity to rural America.

We are aware of the recent concerns about whether Fannie Mae is a Tax-Exempt Controlled Entity (TECE). FHFA should work with the Treasury Department to issue guidance that the Enterprises are not TECEs. As this issue has remained outstanding, we are not surprised by Fannie Mae’s decision to modify its LIHTC investment objectives.

Without Fannie Mae’s investment in multi-investor funds, Evernorth will have a harder time raising capital, and New Hampshire’s rural housing developers will struggle to find an investor and may receive lower LIHTC pricing. In the end, this will impact New Hampshire’s people who live in rural areas and need more affordable housing.

Below we provide answers to your specific questions.

1. What is the proposed modification’s potential impact on the rural LIHTC investments objective in the Plan and on the rural housing market as a whole?
As stated earlier, our rural housing developers rely on Evernorth’s multi-investor fund. Fannie Mae is a key investor in Evernorth’s multi-investor fund. If Fannie Mae stops its Evernorth investment, it will reduce Evernorth’ s ability to fund new LIHTC investments in rural New Hampshire. This will have an impact on our rural developers that struggle to find investors at a financially feasible credit price. Additionally, lower credit pricing means an increased need for scarce capital subsidy.

2. What market conditions should FHFA consider related to the proposed modification?
As with many states, New Hampshire is in a housing crisis. Our 2023 New Hampshire Statewide Housing Assessment estimates a current shortage of 23,500 housing units and that the state will need 60,000 new units by 2030. Therefore, new housing is a critical need, including Housing Credit housing in rural areas.

Our report also presented the concern about the present and growing “disconnect between urban and rural housing policies.” The credit availability and pricing difference between urban and rural New Hampshire is a true existing disparity that is caused, in part, by CRA policy. Fannie Mae’s investment in rural housing help address this disparity by providing capital in rural areas from a trusted source.

We also note that Fannie Mae’s role is not just about capital. Housing Credit properties bring significant benefits to people’s lives including: 1) lower rents compared to market rents; 2) better living conditions due to housing quality and energy efficiency; and construction jobs. Furthermore, new Housing Credit housing is a community asset that in rural communities shows investment and hope.

FHFA has structured the DTS rules to require and enable the GSEs to address rural affordable housing needs. The particular impact of the requested modification – made necessary by uncertainty around the TECE issue – will make it more difficult to finance small rural developments that are not financially feasible through proprietary investment structures.

3. What additional information might be helpful in evaluating the proposed modification? NH Housing is hopeful that Congress will increase the Housing Credit investment cap to allow the production of more affordable housing. The loss of Fannie Mae from the multi-investor market is a challenge today that would be more of a challenge if more Housing Credits were available. It is crucial that the TECE be resolved and that Fannie Mae returns as soon as possible to investing in multi-investor funds.

4. Is the proposed modification appropriate based on the information and justifications provided by Fannie Mae? If not, why not? Regrettably, the proposed modification appears appropriate given the TECE issue. As Fannie Mae’s request states: “Our multi-investor fund activity can serve to encourage other investors, particularly smaller investors, to participate in LIHTC investments since they may feel more confident in a fund that includes Fannie Mae’s participation.” This modification will mean no investment by Fannie Mae and less investments from other investors.

5. Is there any other feedback on the proposed Plan, as modified, that FHFA should consider?
FHFA should ensure that Fannie Mae returns to investing in multi-investor funds as soon as the TECE issue is resolved. Thus, rather than requiring Fannie Mae to go through the entire modification process again, FHFA should permit this modification and include in this modification a provision that rescinds the modification upon resolution of the TECE (assuming the resolution is that Fannie Mae is not a TECE). Alternatively, FHFA could make this a temporary pause of Fannie Mae’s DTS plan, which pause would end if the TECE issue is concluded with Fannie Mae deemed not to be a TECE.

Either approach will empower and require Fannie Mae to immediately begin investing in multi-investor LIHTC funds that serve rural communities. Rural housing needs Fannie Mae in the LIHTC funds. FHFA should ensure timely return of the Enterprises to rural America.