Rep. Torres Urges Banking Regulators to Lower Capital Requirements for Low-Income Housing Tax Credit Investments 

Yesterday, Rep. Ritchie Torres (NY-15) sent a letter to Federal Reserve Vice Chair for Supervision Michelle W. Bowman, FDIC Chairman Travis Hill, and Comptroller of the Currency Jonathan V. Gould, requesting that federal banking regulators reduce the risk weight assigned to Low-Income Housing Tax Credit (LIHTC) equity investments and associated loans from 100% to 20%.

LIHTC has financed more than four million affordable homes since 1987 and remains the nation’s leading tool for producing and preserving affordable housing. Banks account for roughly 80% of LIHTC equity investment, and the current 100% risk weight increases the capital banks must hold against these investments, constraining the financing available for affordable housing.

The letter notes that LIHTC has a near-zero historical loss record. The annual LIHTC recapture rate averaged just 0.08% from 2008 to 2021, and the cumulative foreclosure rate by net equity was just 0.19% from 2000 to 2024. The letter argues that Basel III gives regulators an opportunity to revisit the risk weighting and bring it in line with LIHTC’s actual performance.

The full letter reads (PDF here):

“I am writing to respectfully request that the federal banking regulators reduce the risk weight for Low-Income Housing Tax Credit (LIHTC) equity investments, as well as associated loans, from 100% to 20%.

“LIHTC is the nation’s leading tool for financing the production and preservation of affordable housing. Since 1987, it has financed more than four million affordable homes. With less capital friction, LIHTC could finance millions more.

“The United States faces its deepest housing affordability crisis since the Great Depression. Excessive capital requirements artificially constrain the amount of financing available for affordable housing at a time when the nation can least afford self-inflicted scarcity. Basel III presents banking regulators with an opportunity to reexamine the risk weighting that unnecessarily inhibits investment in LIHTC.

“The 100% risk weight historically assigned to LIHTC is disproportionate to its actual historical risk. Although structured as equity, LIHTC investments exhibit a risk profile far more stable than traditional real estate equity. LIHTC has demonstrated near-zero rates of both recapture and foreclosure. From 2008 to 2021, the annual LIHTC recapture rate averaged just 0.08%. From 2000 to 2024, the cumulative LIHTC foreclosure rate by net equity was just 0.19%. There is nothing in the historical risk profile of LIHTC that justifies anything approaching a 100% risk weight.

“The impact of capital requirements on affordable housing finance cannot be overstated. Banks account for approximately 80% of LIHTC equity investment. Lowering the risk weight for LIHTC to 20% would substantially reduce the capital burden on bank balance sheets, expand investment capacity, and unlock substantial new financing for affordable housing.

“I am not asking banking regulators to treat LIHTC preferentially. Quite the contrary. I am asking for fairness: a risk weight that reflects reality as borne out by history. The verdict of history could not be clearer: LIHTC has an unassailable safety record. The Basel III framework should rate it accordingly.”