Fannie and Freddie’s Billion-Dollar Boost

In early August last year, the Federal Housing Finance Agency (FHFA) announced that, starting in 2026, Fannie Mae and Freddie Mac can each invest up to $2 billion annually in Low Income Housing Tax Credit (LIHTC) properties. This doubles the $1 billion cap formerly allotted to each Government Sponsored Enterprise (GSE), bringing total GSE LIHTC investment capacity to $4 billion annually. The new FHFA guidance also directs each enterprise to invest at least 50 percent of LIHTC activity into “difficult-to-serve” markets, 20 percent of which must support Duty to Serve rural communities.

These new caps are official as of January 1.

Though this change does not alter the LIHTC program’s basic structure or procedures, the new GSE investment cap will allow both Fannie and Freddie to increase their presence as institutional investors in the equity stack, providing a lift to the market as a whole. The practical question for developers, syndicators, and state housing finance agencies is how — and whether — Fannie and Freddie can translate new top-line capacity into executed equity commitments, particularly in the targeted “difficult-to-serve” markets.

Controlled Growth, Intentional Outcomes
The headline number of $4 billion per year across both GSEs is not a direct proxy for unit production. In practice, it is a ceiling on one portion of the capital stack: LIHTC equity provided by two mission-regulated investors that operate with a safety-and-soundness mandate and robust compliance overlay.

FHFA has been steadily increasing the GSEs’ permitted LIHTC footprint since their re-entry into the market in 2017. The most recent prior step-up came when FHFA set the cap at $1 billion annually per enterprise beginning in 2024 and tied those investments to affordability and policy conditions. At the time, FHFA said the GSEs would adjust investment policies so their investments only support projects that remain affordable for the entire 30-year period intended by the program.

The new cap is not merely higher, but also more prescriptive about where capital must land, explicitly linking the increased funds to FHFA’s Duty to Serve Program (DTS), a statutory mission responsibility that requires both GSEs to provide affordable housing by investing in manufactured housing, affordable housing preservation, and rural housing markets even when doing so may be less profitable than other business decisions.

FHFA framed the August change as a supply-side intervention, emphasizing rural and underserved communities. For market participants, the timing is also about perceived supply-demand balance in tax credit equity. David Leopold, executive vice president and head of affordable housing at Berkadia, characterizes the increase as aligned with the GSEs’ joint mission and the market’s needs. “The GSEs’ mission is to provide liquidity, stability and affordability into the housing market,” he says. This has led, Leopold adds, to a focus on “doing everything they can to increase housing supply.”

Leopold also connects the cap increase to broader trends in capital markets, pointing to the possibility of shifts in tax credit demand as certain renewable energy credit dynamics change over the next few years. “We need the increased demand” for housing credits as credit supply expands, he says.

The policy lens and the market lens align: FHFA is steering a larger pool of equity to segments where private capital can be thinner, while the GSEs and syndicators are watching whether the investor base evolves as other tax-advantaged products compete.

GSEs Prepare to “Ramp Up”
Fannie Mae and Freddie Mac representatives say that operational readiness and process efficiency, rather than fundamental changes to underwriting posture, will be the keys to meeting the new cap.

“Freddie Mac is prepared and ready to execute against the doubled LIHTC investment cap,” says Peter Lillestolen, vice president of multifamily production and sales for targeted affordable housing at Freddie Mac. “Since FHFA’s announcement of the increase in August, our team has been working directly with syndicators and other partners to identify new and expanded opportunities to create and preserve affordable housing through LIHTC equity investments around the country.”

“Freddie Mac has worked to increase the efficiency of our processes for LIHTC equity investments while maintaining rigorous standards so we can move quickly to make the right investments,” Lillestolen continues. “We expect 2025 to mark a record high in LIHTC equity investments and will continue the ramp-up through 2026 and beyond.”

At Fannie Mae, Dana Brown, vice president of multifamily customer engagement, says the cap increase is an opportunity to scale an existing operation. “Since restarting LIHTC investment activities in 2018, we have become a market leader in this space,” Brown says, citing “the creation and preservation of over 100,000 units” enabled through the enterprise’s LIHTC activity. Brown attributes the ability to scale in part to “a high-performing LIHTC team” and says Fannie is “exploring new and innovative ways to deploy this additional capital” while continuing to streamline deployment.

Those statements align with the GSEs’ public-facing LIHTC impact reporting. Fannie Mae’s LIHTC progress and impacts page says that since its 2018 re-entry it has invested over $5 billion in LIHTC equity and supported creation or preservation of over 100,000 affordable LIHTC rental units. Freddie Mac, in a perspective piece by Lillestolen, states that since 2018 it has committed more than $5 billion in LIHTC equity funding, ensuring more than 33,000 units were created or preserved.

Serving Those In Need
FHFA’s focus on “difficult-to-serve” and rural markets means the GSEs must source enough eligible transactions to meet specific requirements while also deploying the full expanded cap.

Brown says the new FHFA requirement that 50 percent of LIHTC investment be within “difficult-to-serve” markets is consistent with goals that have guided Fannie Mae since the agency reentered the LIHTC market. “Our focus for the past eight years has been on targeting and providing LIHTC capital where there is less investor demand, both in terms of geographies and project types,” he says. “We’re excited to step up and do more to support rural and difficult-to-serve markets.”

“We work regularly to enhance outreach to these partners and understand where our program can help make a difference to get a project over the finish line,” says Lillestolen, adding that Freddie has “a strong track record of meeting our goals in both difficult-to-serve and rural markets and will maintain sustained focus on both areas.”

Lillestolen says an upcoming shift in tactics may be particularly relevant as the cap expands. “In response to the increased cap, in the coming year, Freddie Mac will also work to source larger deals, which fill a critical liquidity gap in the market.”

Berkadia’s Leopold suggests that in rural DTS segments, the limiting factor may not be competition, but rather the size of eligible projects. “The reason rural markets are in the GSEs’ DTS plans is because these are areas that have historically lacked liquidity,” Leopold notes. Thus, while capacity is doubling, “I don’t think the number of those deals is going to double,” he predicts.

As the eligible rural pipeline grows more slowly than the cap, the incremental dollars may concentrate in other difficult-to-serve categories — such as preservation transactions, disaster-impacted communities, or markets where Community Reinvestment Act (CRA)-motivated bank demand is thinner.

New Cap’s Impacts
Leopold’s expectation is that the GSEs can scale without moving dramatically outside established risk guardrails. “I don’t think they need to make material changes or take risks that they otherwise wouldn’t,” he says. “I don’t anticipate major shifts at all. They follow high standards, as most investors do.”

Instead, Leopold positions the GSEs as a stabilizing middle in the investor stack — between CRA-driven “high price per credit” buyers and purely economic investors who target higher returns. According to Leopold, this allows them to provide liquidity without necessarily displacing banks that pair construction lending with tax credit equity.

That “middle” positioning is part of why some stakeholders view the expanded caps as a potential price stabilizer in a softer equity environment. Leopold describes the GSEs as “ballast liquidity providers,” providing foundational capital that “is good for everybody.”

At a national level, the case for the higher caps is based on the idea that if LIHTC remains the primary production tool, and if equity demand becomes a bottleneck in segments of the market, then scaling two institutional mission-oriented investors can reduce friction in the capital stack.

“The doubling of Freddie Mac’s LIHTC equity cap will support the creation of tens of thousands of new housing units and the preservation of affordable rental housing in communities nationwide,” Lillestolen says, calling it an opportunity to “meaningfully increase the supply of affordable apartment homes around the country.”

Brown casts the enterprise role in similar terms, calling the cap expansion “a huge win for communities across the country” and describing LIHTC as “a proven and effective tool” to boost lower-cost rental supply. He also argues that through its investments, Fannie Mae provides “a reliable source of liquidity and stability” that has helped bridge affordability gaps across varied market types, including rural and high-cost areas.

With the new caps in place, the GSEs are now positioned to focus on translating “record high” expectations for 2025 into disclosed commitments and closings. The basic thesis is straightforward, says Leopold. “Having these two sophisticated investors double their capacity at a time where the market really needs it is great for affordable housing supply.”

Where that new capacity lands, and whether it measurably changes feasibility and timelines in LIHTC markets in urgent need of more affordable units, remains to be seen.