"Fannie Mae and Freddie Mac have already halted non-jurisdictional HFCs and paused lending on jurisdictional HFCs until more clarity emerges." Tim Leonhard, Berkadia
records laws. By themselves, these changes would have curtailed the abuses of the HFC program that have been identified by the legislature and highlighted by the media. However, HB 21 goes farther than HB 2071 by adding the requirement that developers of HFC-backed, non-LIHTC developments demonstrate rent reductions equal to at least 50 percent of tax savings, which is tested both prior to development approval and on an ongoing basis. The bill also requires payment of special district taxes (e.g., those correlating to MUDs and ESDs) in all future developments, including LIHTC. HB 21 also failed to fully grandfather existing HFC partnerships under the prior law, requiring existing developments to come into compliance with various provisions of the law, including deeper affordability and ongoing rent reduction tests to maintain the tax exemption. The specifics of these requirements are far more nuanced than can be explained here, but suffice it to say that HB 21 will drastically change the underwriting of many HFC
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developments and keep developers and their advisers busy with a bevy of new compliance concerns. Critics of the bill warned legislators prior to its approval that HB 21, especially its lack of grandfathering, could have a chilling effect on production of affordable housing in the state and may adversely affect our state’s ability to sustain continued economic development and investment. HB 21 poses significant challenges for investors and lenders in Texas’ affordable housing industry by creating uncertainty around the true value of the HFC tax exemption, according to Tim Leonhard, senior managing director of affordable housing at Berkadia. “Fannie Mae and Freddie Mac have already halted all lending activities on non-jurisdictional HFCs and paused lending on jurisdictional HFCs under 394 until more clarity emerges,” says Leonhard. “Other lenders are following Fannie and Freddie’s lead. And while lending on new housing tax credit developments with jurisdictional HFC sponsorships continues for now, these developments won’t be able to generate the same loan proceeds as they