Increase in the Volume Cap for Bonds and Tax Credits

The Housing and Economic Recovery Act of 2008 (the Act) was signed by President Bush today. It has provisions that are expected to stimulate the low income housing tax credit and tax-exempt bond markets. Each state has a federally mandated volume cap which allows the state to issue private activity tax-exempt bonds and low income housing tax credits to fund various projects throughout the state. Many states have been unable to fund or have had to postpone much needed affordable housing projects due to limited volume cap. This Legal Alert highlights some of the main provisions of the Act that directly or indirectly increase the volume cap for low income housing credits and tax-exempt bonds. 

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Changes Designed to Increase Tax Exempt Bond Issuance and Purchases of Tax Credits

Among the perceived hindrances in the investment in affordable housing projects are the strict rules governing the transfer of existing projects and attainment of acquisition tax credits. Investors have also been discouraged in investing in affordable housing as such investments are not credited in the Alternative Minimum Tax. The Housing and Economic Recovery Act of 2008 (the Act), which was signed into law by President Bush on July 30, 2008, addresses the use of low income and rehabilitation tax credits in the calculation of Alternative Minimum Tax (AMT) and the transfer of existing affordable housing projects.

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Fannie Mae, Freddie Mac and the New Housing Bill

On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008 into law. As the Act relates to the government-sponsored enterprises (the GSEs), Fannie Mae and Freddie Mac, it is designed to accomplish two goals. One goal is to provide assurance to the marketplace that, if necessary, the federal government has the authority to provide financial support to the GSEs. The second goal is to provide stricter oversight and regulation of Fannie Mae and Freddie Mac, primarily monitoring their use of sound financial practices and encouraging the GSEs to continue to serve the public good.

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