Proposal For US Treasury To Buy $5B In Low-Income Housing Tax Credits?

According to a published report in the Boston Globe, US Representative Barney Frank stated that he wants to propose that the US Treasury buy $5 billion in low-income housing tax credits as a way to help re-start the development of affordable housing across the country and provide additional funding of $5 billion for states. Frank states that the funding will come from the upcoming stimulus bill currently being discussed by lawmakers and will hope fully be passed next month. While the proposal make sense from a public policy perspective, why wouldn’t Frank, who is chairman of the House Financial Services Committee, propose further restructuring of Fannie Mae and Freddie Mac (who are under government control already) to be the mechanism to purchase the credits since they have been the largest purchasers of the tax credits?

Paulson said in a speech to the Economic Club of Washington that the former model of the GSE’s were flawed and that a hybrid public-utlity type of company would purchase and securitize mortgages with a credit guarantee by the government. The rates of these mortgages would be set by a government run coalition and provide a model for the new enterprises to be private, for-profit enterprises. Through this type of scenario, the issuers could possibly purchase some of the tax credits and providing a yield enhancement to the low rate of return provided by the privatization of these public-utility type companies.