Freddie Mac LIHTC Enhancement
Foreclosure Protection for Investors through Freddie Mac LIHTC Enhancement
Freddie Mac LIHTC Enhancement for Additional Foreclosure Protection
Investing in a property with a Low-Income Housing Tax Credit typically requires a hefty amount of "skin in the game" on the part of the investor(s). Because of the added risk, many LIHTC Investors are left looking for an added degree of financial security. Luckily, Freddie Mac has designed a product that can provide them with that additional degree of protection: the Freddie Mac LIHTC Enhancement. Specifically designed for properties being financed with Freddie Mac Bond Credit Enhancements, Freddie Mac Tax-Exempt Loans (TELs), or Freddie TAH Cash Loans, the LIHTC Enhancement program protects investors in the event of a foreclosure by providing a make-whole payment based on the investor's initial contribution, in exchange for paying a quarterly fee to Freddie Mac. LIHTC Enhancement is only intended for use by experienced borrowers with mixed-income properties and is valid for 10-year terms.
2021 Sample Freddie Mac Terms For LIHTC Enhancement
Size: Varies based on LTV and DSCR requirements.
Use/Purpose:
- LIHTC Enhancements protect LIHTC investors in the case of a foreclosure, which is available for properties funded with Freddie Mac financing including Bond Credit Enhancement, Tax-Exempt Loans (TELs), or TAH Cash Loans.
- If Freddie Mac forecloses on a loan with LIHTC Enhancement, the investor will receive a make-whole payment equal to the amount of their initial investment, but not including the amount of their tax credit.
- Freddie Mac must be paid a fee for the LIHTC Enhancement
- Protects LIHTC investors in the case of foreclosure
- Requires quarterly fees based on risk
- Additional documentation is typically required, including annual K-1s (documents reporting every shareholder's share of income, losses, deductions, and credits) and reports documenting the property's performance and compliance with the LIHTC agreement
Term: 10 years
Maximum LTV/Minimum DSCR: Based on the requirements for the Senior Loan (either Bond Credit Enhancement, Tax-Exempt Loans (TELs), or TAH Cash Loans)
Eligible Properties: Newly developed and stabilized high-rise and mid-rise mixed-income properties, 80/20s, or similar projects
Eligible Borrowers: Financially strong 80/20 developers with significant experience in the applicable market
Occupancy Requirement: The property must be fully stabilized with qualified low-income tenants
Advantages:
Disadvantages: