Nov. 7 (Bloomberg) -- Fannie Mae’s request to sell $2.6 billion in low-income housing tax credits would be a bad deal for taxpayers and won’t be allowed, the U.S. Treasury said.

The government decided the deal would cost taxpayers more than Fannie Mae would gain from the sale, according to a letter sent to the Washington-based company yesterday. The Treasury was considering whether to let Goldman Sachs Group Inc. buy credits, which could be used to lower the firm’s tax bill.

The prospect of record year-end bonus payments at Goldman Sachs had sparked criticism from lawmakers even after the securities firm repaid $10 billion from the Treasury last year plus dividends. New York-based Goldman has also benefited from Federal Reserve support and government backing on about $30 billion of debt, and was one of the largest recipients of funds from the U.S. bailout of American International Group Inc.

“Every politician on Capitol Hill right now hates Goldman,” said Paul Miller, a bank analyst with FBR Capital Markets in Arlington, Virginia. “Politically, this would look really bad.”

Goldman said last month it has set aside $16.7 billion for compensation so far this year, up 46 percent from the same period in 2008.

Fannie Mae, which is operating under government conservatorship, has said it may not be able to use the tax credits because it hasn’t reported a profit in nine quarters. The company entered an agreement before Sept. 30 to sell the credits at a premium, partly to avoid potential writedowns, according to a Nov. 5 filing with the Securities and Exchange Commission.

No Economic Sense

“The proposed sale would result in a loss of aggregate tax revenues that would be greater than the savings to the federal government from a reduction in the capital contribution obligation of Treasury to Fannie Mae,” the Treasury said in the letter. “Withholding approval of the proposed sale affords more protection of the taxpayers than does providing approval.”

Miller said the sale didn’t make economic sense to the Treasury.

“Net net, this would look negative to the shareholder and that’s who Treasury is supposed to be representing,” Miller said.

A Goldman Sachs spokesman, Lucas van Praag, declined to comment, as did a Fannie Mae spokesman, Brian Faith.

Fannie Mae has posted $120.5 billion in net losses over the past nine quarters and requested $59.9 billion in Treasury aid.

Tax Benefits

Fannie Mae has accumulated about $5.2 billion in tax credits for investing in low-income housing, and has said in previous filings that it is “not currently recognizing a majority of the tax benefits associated with tax credits.”

The company said Nov. 5 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.

McLean, Virginia-based rival Freddie Mac, which is also operating under federal conservatorship, said in a separate SEC filing yesterday that it has about $3.4 billion in tax credits it may need to write down.

“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.

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

Last Updated: November 7, 2009 00:00 EST