Freddie Mac Low-Income Housing Tax Credit (LIHTC) Enhancement 

Freddie Mac LIHTC Enhancement Provides Foreclosure Protection for Investors 

If you're an LIHTC investor for an affordable property that's being financed with a Freddie Mac Bond Credit Enhancement, a Freddie Mac Tax-Exempt Loan (TEL), or a Freddie Mac TAH Cash Loan, and are looking for an added degree of financial security, Freddie Mac's LIHTC Enhancement program could be a fantastic choice. The LIHTC Enhancement program protects LIHTC investors in the case of 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 Enhancements are available for financially strong borrowers with significant experience in 80/20 (i.e. 80% market-rate, 20% affordable)  or other types of mixed-income properties, and last for a term of 10 years. 



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 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 

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:

  • Protects LIHTC investors in the case of foreclosure 

Disadvantages:

  • 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