The federal low-income housing tax credit is a credit available to investors, including banks, over a ten year period and is based upon a percentage of the cost of construction of a multifamily apartment complex. Investments in low-income housing tax credit partnerships have proven to be advantageous to banks throughout the three decade history of the Low-Income Housing Tax Credit ("LIHTC"). The current yields for LIHTC investments can reach 7%, a substantial increase over the yields available 12 months ago due to the withdrawal of Fannie Mae and Freddie Mac from the LIHTC investment market and the resulting reduction in the demand for LIHTC.
Traditionally, LIHTC projects have enjoyed an extremely low foreclosure rate. The low rate is due to the low loan to value ratio that results from the increased equity available to these projects, caused in part by the additional subsidy available to the projects such as the availability of state low-income housing tax credits in Georgia and a state zero percent interest tax credit loan program in North Carolina. Since foreclosure would trigger a recapture of the LIHTC for which the developer is personally liable, the projects are in effect financed on a recourse basis with a substantial incentive for developers to fund operating deficits rather than face the consequences of a recapture guarantee. The recently enacted "Housing Assistance Act of 2008" included a number of legislative changes that have the effect of increasing liquidity in the LIHTC marketplace and making it easier for institutions to transfer investments in LIHTC funds without triggering recapture.
In addition to the high yield to risk ratio of LIHTC investments, there is a substantial community benefit from the availability of safe, decent and affordable housing for families who earn less than 60% of area median gross income. These families may include bank tellers, school teachers, retail sales clerks and other lower-income employees. The federal regulators recognize this community benefit and participating banks receive favorable CRA consideration.
OCC Presentation on LIHTC Funds
On Wednesday, September 10, 2008, at 2:00 pm, Eastern Daylight Time, the Office of the Comptroller of the Currentcy is presenting a 90-minute web and telephone seminar on the investment opportunity that is presented by LIHTC funds. Specifically, the OCC plans to address how the LIHTC program works, fund investments and CRA considerations, financial, tax, and accounting benefits, and examples of successful fund investments.
A copy of the OCC's Brochure for this web and telephone seminar is attached. In addition, earlier this year, the OCC published a report on the LIHTC program, which can be found online at http://www.occ.treas.gov/ftp/release/2008-10a.pdf.
Powell Goldstein Can Help
Powell Goldstein LLP is a national leader in the syndication of tax credits and specifically the Low-Income Housing Tax Credit. In addition to representing a number of syndicators of credits, Powell Goldstein represents investors in LIHTC, historic rehabilitation, New Markets Tax Credit and renewable energy credit transactions as well as developers and state allocating agencies that administer the LIHTC program. We can assist community banks in the review and negotiation of the documents pursuant to which an institution can take advantage of an LIHTC program. In addition, we can provide counsel with respect to investments in state tax credit programs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
