Industry Letter

Federal Low Income Housing Tax Credit Program (LIHC)

January 28, 2009

To the Institution Addressed:

Re: Federal Low Income Housing Tax Credit Program (LIHC)

I would like to take a moment to introduce you to the benefits of the Federal Low Income Housing Tax Credit (LIHC) program. The LIHC program makes federal tax credits available to investors in affordable rental properties as a way to bring private equity into the development of affordable housing. It also can help investing institutions lower their taxes, revitalize communities, and earn Community Reinvestment Act credits (CRA).

The Division of Housing and Community Renewal (DHCR), the state agency that administers the LIHC program in New York, has facilitated the creation of the Upstate Equity Fund, which will be managed by Great Lakes Capital Fund (www.capfund.net). This fund will pool investments from new participants in the market and secure funding for Upstate projects that have become hard to finance due to the recent problems in the credit and mortgage markets.

How Banks Benefit

The primary economic benefit of an LIHC investment is the opportunity to claim a federal tax credit for 10 years. The Upstate Equity Fund would also help keep your investment “local” and add to the economic stability of the communities your institution serves. In addition, institutions that participate in an Upstate Equity Fund are eligible to earn positive consideration toward regulatory ratings under the CRA.

Equity funds are considered a good choice for the investors because the investment is spread across multiple developments, so there is less risk involved than in a direct investment. Once a corporation invests in an equity fund, it becomes a limited partner or investor member in the fund and the syndicator assumes primary responsibility for monitoring the portfolio.

To complement participation in a pooled fund, your institutions would have the opportunity to increase your commitment to a specific development by providing a “side-by-side” investment with the equity fund. For example, a bank can help generate investments in a given market by identifying a need and then making an additional side-by-side investment in a specific project.

In New York, LIHCs have been directly responsible for the construction or rehabilitation of nearly 50,000 affordable rental units for low and moderate-income families and seniors.

If you are interested in learning more about this program, please visit Great Lakes Capital Fund at www.capfund.net or contact Jim Logue at (517) 482-8555.

Sincerely,

Richard H. Neiman
Superintendent of Banks