Nov. 9 (Bloomberg) -- Fannie Mae is reviewing whether it will have to write down $5.2 billion in low-income housing tax credits after the U.S. Treasury rejected its request to sell the investments, the mortgage-finance company said today.

The Treasury found an agreement to sell about half of Fannie Mae’s credits would have cost taxpayers more than the company would gain from the deal, according to a letter sent Nov. 6 to the Washington-based company. The Treasury was considering whether to let Goldman Sachs Group Inc. buy credits, which could be used to lower the firm’s tax bill.

“We are evaluating whether Treasury’s decision changes our prior determination that we continue to have the intent and ability to sell or otherwise transfer” the credits, the company said in a filing today with the Securities and Exchange Commission. “While our conservator has directed us to continue to explore options to sell or transfer these investments for value consistent with our mission, we believe this will be difficult given current constraints and market conditions.”

Fannie Mae, which is operating under government conservatorship, said Nov. 5 in its third-quarter earnings report that it will need to write down the $5.2 billion investment to zero if “we no longer have the intent and ability to sell or otherwise transfer” the low-income housing tax credits, which are derived from investments in affordable rental housing.

No Profit

The company said if it writes down those assets in the fourth quarter, it will increase the company’s draw on a $200 billion lifeline from the Treasury. Fannie Mae, the largest U.S. mortgage-finance company, has posted $120.5 billion in net losses over the past nine quarters and requested $59.9 billion in Treasury aid.

The company said in previous filings that it is “not currently recognizing a majority of the tax benefits associated with tax credits.”

Fannie Mae has said it may not be able to use the credits because it is unprofitable. Fannie Mae entered an agreement before Sept. 30 to sell the credits at a premium, partly to avoid potential writedowns, according to its Nov. 5 securities filing.

The prospect of Goldman Sachs benefiting from Fannie Mae’s tax credits was politically unpalatable, said Paul Miller, a bank analyst with FBR Capital Markets in Arlington, Virginia

“Every politician on Capitol Hill right now hates Goldman,” Miller said in an interview Nov. 6. “Politically, this would look really bad.”

‘Lucrative for Goldman’

Six House members urged Treasury Secretary Timothy Geithner in a Nov. 5 letter to oppose the sale, saying it would be “extremely lucrative for Goldman, minimally helpful to Fannie and extremely harmful to the U.S. taxpayers.”

“Goldman’s record profits this year -- they are on track to award $23 billion in bonus compensation -- suggest the taxpayers have a better use and greater claim on these funds than a private, highly profitable investment bank,” the lawmakers said in the letter sent by Representative Peter Welch, a Vermont Democrat.

Fannie Mae’s regulator, the Federal Housing Finance Agency, has also authorized smaller rival Freddie Mac to seek buyers for the $3.4 billion in tax credits it still holds, company spokeswoman Patti Boerger said in an interview today.

Freddie Mac’s Plans

McLean, Virginia-based Freddie Mac is looking for non- traditional investors that aren’t federally insured depository institutions subject to the Community Reinvestment Act, and which haven’t taken money from Treasury’s Troubled Asset Relief Program, she said.

The company would only seek buyers for the credits “who haven’t invested in this market for at least a decade,” Boerger said. She said the Treasury and the housing finance agency haven’t approved a specific transaction yet.

Freddie Mac, which is also operating under a conservatorship, said in a separate SEC filing Nov. 6 that it may also need to write down its $3.4 billion in tax credits.

“If we are not able to execute sales or other transactions in order to realize the benefits of these investments or do not receive regulatory approval for such transactions, we may record significant other-than-temporary impairment,” Freddie Mac said.

Fannie Mae’s shares rose 1 cent to $1.05 at 4:01 p.m. in New York Stock Exchange composite trading. Freddie Mac declined by 1 cent to $1.22.

To contact the reporter on this story: Dawn Kopecki in Washington at kopecki@bloomberg.net

Last Updated: November 9, 2009 16:12 EST