The Treasury has rejected Fannie Mae's plan to sell its low-income housing tax credits, so the company may have to write down their value to zero. I wrote about Fannie's attempt to sell the credits to Goldman Sachs last week. I found the idea very questionable from a taxpayer standpoint, and the Treasury agreed. But writing down these the credits isn't something that should be surprising, or really a problem.

First, here's the new blurb from Bloomberg:

A proposal by Fannie Mae to sell $2.6 billion of the credits would cost taxpayers more than the company would gain from the sale, according to a letter Treasury sent to the Washington-based company on Nov. 6. Treasury was weighing whether to let Goldman Sachs Group Inc. buy credits, which could be used to lower the firm's tax bill.



Consequently, Bloomberg reports that Fannie may have to write down $5.2 billion related to the credits. Since the government essentially owns the mortgage purchaser and insurer, that's essentially a direct loss for taxpayers. But, well, wouldn't it have been anyway?

For starters, let's not forget that these were tax credits. So that's essentially money that the government wouldn't have gotten anyway. This is money it still won't get. The difference, of course, is that Fannie is well in the red, and the government has agreed to plow up to $200 billion of capital into the company to keep it solvent.

But not all is lost. If Fannie had sold the credits to Goldman or some other party, then that firm would have offset their taxes. So the government would still have lost this amount. Without the credits, that firm will be forced to pay the taxes, which will cover what Fannie (and consequently the government) would have received from selling the credits. In fact, it should more than cover it, since the credits would have been sold at a discount. As a result, the taxes paid by whatever firm would have purchased the credit should neutralize the loss to taxpayers that Fannie will incur from not claiming the credits.

So really, this outcome isn't shocking, or much to worry about, since nothing new is really going on here. Fannie continues to struggle, and the government will continue to prop it up. But luckily, this particular loss really isn't one, since it's related to a tax credit that simply won't be taken by anyone.

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