Buffett Joins Goldman in Bid for Fannie Mae Tax Credits (BRK.A; FNM)

From the Wall Street Journal:

Warren Buffett's Berkshire Hathaway Inc. has joined Goldman Sachs Group Inc. in the investment bank's bid to buy $3 billion in tax credits from government-owned mortgage giant Fannie Mae, according to people familiar with the matter.

The involvement of Mr. Buffett adds a twist to what was already a politically sensitive deal. The Treasury Department is considering blocking any potential sale on the grounds that it wouldn't benefit taxpayers; the money Fannie Mae would earn would be offset by the fall in the government's tax income.

Fannie Mae and Freddie Mac were seized by the government last year and the Treasury Department has invested close to $100 billion in the housing-finance giants. Almost all their business decisions are vetted by government officials. What would have been simple deal a couple of years ago is now fraught with political calculations, such as the perception of aiding a Wall Street giant at a time of populist anger against bankers.

The credits are virtually worthless to Fannie Mae and require the company to take losses each quarter as their value declines. Companies such as Berkshire Hathaway and Goldman Sachs could use them to offset federal tax expenses.

A Berkshire Hathaway spokeswoman didn't have an immediate comment. Goldman Sachs and Fannie Mae declined to comment. Treasury officials say they are still reviewing the proposal.

Berkshire Hathaway could be an appealing partner for Goldman. While the bank's reputation has been tarnished by the financial crisis, Mr. Buffett is widely respected in Washington and on Wall Street. Both Mr. Buffett and Goldman could reap large returns from investing in these credits. One investor who has considered a similar transaction said they promise annualized returns of at least 30%.

Berkshire Hathaway has been an investor in low-income-housing tax credits in the past. Four years after the low-income housing tax-credit program was established in 1986, Mr. Buffett launched a plan to invest $25 million to create housing in areas ranging from Houston, Los Angeles, Detroit and Chicago....MORE