Over the weekend, the San Francisco Chronicle provided a good article on how the credit crunch has impacted the market for tax credits and their use in financing various housing projects with a specific focus on California. The article entitled, Lack of tax-credit market hurts building trade, profiles a Napa Valley Senior Housing Project that cannot sell the credits to raise the equity. Considering that Fannie Mae and Freddie Mac purchased almost 40% of the tax credits available in 2007, it seems that the agencies (now under government control) need to begin purchasing them en masse again. However, with the amount of tax loss carry forwards that they will have from the write downs, it seems that they won’t have a major financial need to purchase the tax credits. However, if they continue to fulfill their mission of enabling affordable housing, the government will have to figure out how to make it financially worthwhile for the agencies to continue those purchases in their new role. Other proposals have included that major financial institutions will be required to purchase tax credits if they receive federal assistance under the Troubled Asset Relief Program (TARP) or that purchased tax credits could be refundable if investors don’t have adequate income to make use of them. Any way you look at the tax credit program, a government “bailout” or restructuring is most likely in the program’s future.