The Affordable Housing Tax Credit Coalition (AHTCC) recently submitted comments to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency regarding proposed revisions to the federal agencies’ regulatory capital framework. The AHTCC also joined a broad coalition of affordable housing and financial services organizations in support of a separate industry comment letter addressing the same proposal.
At issue is the risk weight assigned to Housing Credit investments under the proposed Basel III capital framework. As drafted, the federal regulatory agencies would continue to assign a 100 percent risk weight to Housing Credit investments despite the strong performance of the asset class and exceptionally low investor losses.
In its comment letter, the AHTCC argued that Housing Credit investments are fundamentally different from traditional equity investments that receive the same risk weight, and more closely resemble fixed-income investments. The Housing Credit provides investors with a highly predictable stream of federal tax benefits over time, and investor exposure declines as credits are claimed. As a result, the actual risks borne by Housing Credit investors are substantially lower than those typically associated with real estate equity investments.
The AHTCC letter highlighted several key indicators of the strong performance of Housing Credit investments:
- Housing Credit property foreclosure rates have consistently remained below those of conventional multifamily housing, even through economic recessions.
- The cumulative foreclosure rate by net equity peaked below 0.5 percent following the Great Recession and declined to approximately 0.19 percent by 2024.
- IRS data show that Housing Credit recapture rates—the primary mechanism through which investor losses occur—averaged just 0.08 percent between 2008 and 2021.
- The Federal Reserve’s own supervisory stress-testing framework assigns Housing Credit investments significantly smaller losses under a severely adverse scenario than those applied to real estate equity or debt instruments.
Based on this demonstrated performance, the AHTCC urged the agencies to assign Housing Credit investments a risk weight no greater than 50 percent, consistent with the favorable treatment assigned to certain low-risk statutory multifamily mortgage exposures. Housing Credit investments are supported by the same affordable multifamily properties that underpin statutory multifamily mortgage exposures, yet continue to receive a substantially higher risk weight under the proposal. The letter further noted that the exceptionally low level of investor losses supports consideration of a risk weight as low as 20 percent.
The AHTCC also signed onto an industry coalition letter that similarly urges the agencies to recognize the unique characteristics and strong performance record of Housing Credit investments. That letter, signed by the AHTCC and 26 other national affordable housing, banking, lending, and multifamily housing organizations, recommends a 20 percent risk weight for Housing Credit investments and loans backed by Housing Credit properties and argues that, in no case, should the applicable risk weight exceed 50 percent.
These comments come at a critical time for affordable housing production. The Housing Credit provisions enacted in 2025 are expected to support the development of more than 1.2 million additional affordable rental homes over the next decade. Ensuring that regulatory capital requirements accurately reflect the demonstrated performance of Housing Credit investments will enhance the private capital necessary to finance those homes.
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