There is talk among developers that use low income housing tax credits of developing a commercial platform or marketplace in which to trade these credits. Whether it comes to fruition is unclear – there are significant challenges in establishing this kind of platform for such a complex form of finance. What is clear, though, is that something must be done to jumpstart the trade of these credits.

Ever since Fannie Mae and Freddie Mac were put into conservatorship in September, their purchases of LIHTCs have all put ceased. To be sure, developments dependent on LIHTCs have slowed considerably in the last year as the value of these tax credits have dropped significantly. But this issue is dwarfed by Fannie Mae and Freddie Mac’s de facto withdrawal from the market – the two agencies are among the largest buyers in the market. Indeed, earlier this month the National Association of Counties, the National Association of Local Housing Finance Agencies, the National Community Development Association, and the U.S. Conference of Mayors reportedly asked Treasury Secretary Henry Paulson and Federal Housing Finance Agency director James Lockhart, to direct the GSEs to start buying these credits again.

“There has been a flight to quality in the LIHTC market for over a year,” Gary Downs, a San Francisco-based attorney with Pillsbury Winthrop Shaw Pittman, tells “And it has become even more acute over the last few months, as Freddie and Fannie decreased their purchases and at some points even ceased them all together.”

The problems have worsened as other institutional buyers have stepped back as well – largely for similar reasons. With the credit markets frozen, investors are hanging onto their cash. For affordable housing advocates and developers, this state of affairs is particularly frustrating because the Housing and Economic Recovery Act, which passed in July, increased the amount of credits available to these projects. But with the subsequent huge disconnect that has developed between supply and demand, Downs says, these new regulations are irrelevant – at least in the current market.

This environment – painful as it is – though has fostered talk of developing what could be an entirely new source of demand. “There is discussion of creating what would be essentially a retail market for tax credits that would be sold to individuals if the supply and demand issues in these traditional markets don’t resolve quickly,” Downs says.

These informal talks are being spearheaded by developers that are having difficulties accessing this part of the capital market, he says, declining to name them for reasons of confidentiality. The crux of the discussions focus on creating a retail network in an attempt to sell the credits they are producing for their projects, he explains.

Few participants in this segment of the CRE industry are willing to discuss the plans other than in the most general of terms. “We are all trying to figure out how to engage any entity that wants to invest in LIHTCs,” Dana Bourland, senior director of Baltimore-based Enterprise Community Partners, tells “There is a lot of discussion around how to keep this vehicle alive in current economic situation.

“Clearly something needs to be done,” Joel Harden, CEO of the HCFD Corp., a Philadelphia-based developer, tells “The demand for these credits is simply not there anymore –at least at the levels it was a few months ago.”

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