1. HOUSING TAX CREDIT MODERNIZATION PROPOSALS Richard S. Goldstein Nixon Peabody LLP October 19, 2007

2. Background With Democratic takeover of the House, new Chairmen, Rangel (Ways and Means) and Frank (Financial Services), agree to work on coordinating and improving the LIHTC Rangel staff person, Jon Sheiner, seeks input from industry groups on tax credit provisions Financial Services staff working on HUD and RHS coordination

3. Status Bills still being worked on Discussions with Joint Tax Committee on scoring Dates for introduction still unclear

4. Possible Tax Credit Proposals Allow the use of housing credits to offset corporate and individual AMT – A number of corporate investors are or will be in AMT (including Fannie Mae) – Proposal caught up in larger AMT issues

5. Possible Tax Credit Proposals Tax-exempt bond interest not a preference item for AMT Repeal recapture bonds Repeal ten percent carryover test Conform certain housing credit and bond rules – Next available unit rule – Student definition – Allow bonds to finance SROs

6. Possible Tax Credit Proposals Repeal the prohibition of use of credits with Section 8 moderate rehabilitation projects Allow states to increase eligible basis by up to 30% for properties that meet state-specified criteria Do not reduce eligible basis by interest reduction payments (IRPs) or rent subsidies Allow acquisition costs to qualify for the 9% credit

7. Possible Tax Credit Proposals Eliminate the concept of Below Market Federal Loans, i.e., all new construction and sub rehab projects get 9% credits, except if bond financed Allow income targeting of up to 80% of median income where severe housing shortage – Not clear if offsetting lower targeting would be required

8. Possible Tax Credit Proposals Over-income tenants would be required to pay 30% of household income for rent Use different methodology to determine annual rent adjustments due to change in HUD calculation – Most likely proposal involves using CPI to adjust rents

9. Possible Tax Credit Proposals Re-use tax-exempt bond authority if bonds are redeemed early (will not generate new credits) Fix credits at 4% and 9% Liberalize rules for community service facilities to be included in eligible basis Liberalize the anti-churning rules for acquisition credits from 10% to 50%

10. Other AHTCC Proposals Allow below AFR HOME-assisted properties located in QCTs or DDAs to receive the 30% basis boost 2 out of 3 Rule would become 3 out of 3: – Below Market HOME Loan – 9% Credits – 30% Boost

11. Other AHTCC Proposals Do not reduce eligible basis by Historic Credits or Energy Credits Re-name the Low Income Housing Tax Credit the Affordable Housing Tax Credit Preferences for first responders, teachers and other groups allowed by the housing credit agency

12. Other AHTCC Proposals Allow housing credits to continue for properties suffering a casualty, even if not in a disaster area, if re-built in a reasonable time Repeal the ten year rule

13. Possible Proposals re HUD and Tax Credits Improve FHA processing procedures Eliminate subsidy layering review if only FHA insurance is only HUD program involved Eliminate or coordinate cost certifications Redefine equity to include tax credit equity for limited dividend limitation purposes

14. Possible Proposals re HUD and Tax Credits Eliminate equity escrow requirements Coordinate asset management requirements with housing credit agency compliance monitoring