On August 23, 2010 HUD issued final regulations implementing a provision in the Housing and Economic Recovery Act of 2008 (P.L.  110-289) prohibiting the Department from requiring tax credit proceeds be escrowed to assure project completion in order to receive a HUD-insured mortgage.  The ban applies to the Low-Income Housing Tax Credits (LIHTC), historic tax credits and new markets tax credits. 

The change addresses concerns that mandated escrowing inhibited the building of new LIHTC projects and forced many developers to seek bridge loans until escrowed funds were released. 

Notably, HUD may continue to require escrows of funds for other purposes, including for working capital.