Monday, April 2, 2012

What to really worry about for the Housing Credit and the Volcker Rule

by Peter Lawrence, Enterprise Community Partners

NHC invites guest blog posters to write on important housing topics. The views expressed by guest posters do not necessarily reflect those of NHC or its members. 

As the Administration is approaching the July 2012 deadline to finish drafting regulations implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, some in the affordable housing community are concerned that the regulations covering the law’s so-called “Volcker Rule,” named for former Federal Reserve Board of Governors Chairman Paul Volcker, would harm a bank’s ability to invest in the Low Income Housing Tax Credit (Housing Credit). A recent Marcus & Millichap alert (not available on the web) addressed this point. Concerns about the Volcker Rule and the Housing Credit, however, are really quite narrow and specific to bank sponsored funds, not bank investments in Housing Credits generally.

Volcker originally conceived of the rule to ban proprietary trading by commercial banks whereby deposits are used to trade on the bank's personal accounts. However, banks’ ability to invest in Housing Credit funds is permitted under the rule, as the Act specifically includes an exemption for investments permitted under the Part 24 Public Welfare Investments authority derived from National Bank Act and related Office of the Comptroller of the Currency (OCC) regulations. However, there is some question as to whether the Volcker Rule permits banks to sponsor Housing Credit funds, as some banks who have invested in Housing Credit funds do. Dodd-Frank specifically allows banks to sponsor funds involving the Historic Rehabilitation Tax Credit, but it is uncertain whether the general ban on sponsoring funds in the rule also applies to the Housing Credit.

The Housing Credit is the single largest federal program for development and preservation of affordable housing. Investment by banks in Housing Credit properties helps the program function—the Housing Credit is a proven and reliable (though not required) way to meet Community Reinvestment Act (CRA) obligations. Fortunately, banks ability to invest in Housing Credits is permitted, with clarification needed only around sponsorship.

Peter Lawrence is the Senior Director for Public Policy & Government Affairs at Enterprise Community Partners, a member of the National Housing Conference's Leadership Circle. For 30 years, Enterprise has introduced solutions through public-private partnerships with financial institutions, governments, community organizations and other partners to create opportunity for low- and moderate income people through affordable housing in diverse, thriving communities.

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