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§ 143. Mortgage revenue bonds: qualified mortgage bond and qualified veterans’ mortgage bond
(a)
Qualified mortgage bond
(1)
Qualified mortgage bond defined
For purposes of this title, the term “qualified mortgage bond” means a bond which is issued as part of a qualified mortgage issue.
(2)
Qualified mortgage issue defined
(A)
Definition
For purposes of this title, the term “qualified mortgage issue” means an issue by a State or political subdivision thereof of 1 or more bonds, but only if—
(i)
all proceeds of such issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences,
(ii)
such issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7),
(iii)
such issue does not meet the private business tests of paragraphs (1) and (2) of section
141
(b), and
(iv)
except as provided in subparagraph (D)(ii), repayments of principal on financing provided by the issue are used not later than the close of the 1st semiannual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds which are part of such issue.
Clause (iv) shall not apply to amounts received within 10 years after the date of issuance of the issue (or, in the case of refunding bond, the date of issuance of the original bond).
(B)
Good faith effort to comply with mortgage eligibility requirements
An issue which fails to meet 1 or more of the requirements of subsections (c), (d), (e), (f), and (i) shall be treated as meeting such requirements if—
(i)
the issuer in good faith attempted to meet all such requirements before the mortgages were executed,
(C)
Good faith effort to comply with other requirements
An issue which fails to meet 1 or more of the requirements of subsections (g), (h), and (m)(7) shall be treated as meeting such requirements if—
(D)
Proceeds must be used within 42 months of date of issuance
(i)
In general
Except as otherwise provided in this subparagraph, an issue shall not meet the requirement of subparagraph (A)(i) unless—
(I)
all proceeds of the issue required to be used to finance owner-occupied residences are so used within the 42-month period beginning on the date of issuance of the issue (or, in the case of a refunding bond, within the 42-month period beginning on the date of issuance of the original bond) or, to the extent not so used within such period, are used within such period to redeem bonds which are part of such issue, and
(b)
Qualified veterans’ mortgage bond defined
For purposes of this part, the term “qualified veterans’ mortgage bond” means any bond—
(1)
which is issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide residences for veterans,
(2)
the payment of the principal and interest on which is secured by the general obligation of a State,
(3)
which is part of an issue which meets the requirements of subsections (c), (g), (i)(1), and (l), and
(4)
which is part of an issue which does not meet the private business tests of paragraphs (1) and (2) of section
141
(b).
Rules similar to the rules of subparagraphs (B) and (C) of subsection (a)(2) shall apply to the requirements specified in paragraph (3) of this subsection.
(c)
Residence requirements
(d)
3-year requirement
(1)
In general
An issue meets the requirements of this subsection only if 95 percent or more of the net proceeds of such issue are used to finance the residences of mortgagors who had no present ownership interest in their principal residences at any time during the 3-year period ending on the date their mortgage is executed.
(2)
Exceptions
For purposes of paragraph (1), the proceeds of an issue which are used to provide—
(C)
financing with respect to land described in subsection (i)(1)(C) and the construction of any residence thereon, and
(D)
in the case of bonds issued after the date of the enactment of this subparagraph and before January 1, 2008, financing of any residence for a veteran (as defined in section
101 of title
38, United States Code), if such veteran has not previously qualified for and received such financing by reason of this subparagraph,
shall be treated as used as described in paragraph (1).
(e)
Purchase price requirement
(1)
In general
An issue meets the requirements of this subsection only if the acquisition cost of each residence the owner-financing of which is provided under the issue does not exceed 90 percent of the average area purchase price applicable to such residence.
(2)
Average area purchase price
For purposes of paragraph (1), the term “average area purchase price” means, with respect to any residence, the average purchase price of single family residences (in the statistical area in which the residence is located) which were purchased during the most recent 12-month period for which sufficient statistical information is available. The determination under the preceding sentence shall be made as of the date on which the commitment to provide the financing is made (or, if earlier, the date of the purchase of the residence).
(3)
Separate application to new residences and old residences
For purposes of this subsection, the determination of average area purchase price shall be made separately with respect to—
(4)
Special rule for 2 to 4 family residences
For purposes of this subsection, to the extent provided in regulations, the determination of average area purchase price shall be made separately with respect to 1 family, 2 family, 3 family, and 4 family residences.
(f)
Income requirements
(1)
In general
An issue meets the requirements of this subsection only if all owner-financing provided under the issue is provided for mortgagors whose family income is 115 percent or less of the applicable median family income.
(2)
Determination of family income
For purposes of this subsection, the family income of mortgagors, and area median gross income, shall be determined by the Secretary after taking into account the regulations prescribed under section 8 of the United States Housing Act of 1937 (or, if such program is terminated, under such program as in effect immediately before such termination).
(3)
Special rule for applying paragraph (1) in the case of targeted area residences
In the case of any financing provided under any issue for targeted area residences—
(4)
Applicable median family income
For purposes of this subsection, the term “applicable median family income” means, with respect to a residence, whichever of the following is the greater:
(5)
Adjustment of income requirement based on relation of high housing costs to income
(A)
In general
If the residence (for which financing is provided under the issue) is located in a high housing cost area and the limitation determined under this paragraph is greater than the limitation otherwise applicable under paragraph (1), there shall be substituted for the income limitation in paragraph (1), a limitation equal to the percentage determined under subparagraph (B) of the area median gross income for such area.
(B)
Income requirements for residences in high housing cost area
The percentage determined under this subparagraph for a residence located in a high housing cost area is the percentage (not greater than 140 percent) equal to the product of—
(C)
High housing cost areas
For purposes of this paragraph, the term “high housing cost area” means any statistical area for which the housing cost/income ratio is greater than 1.2.
(D)
Housing cost/income ratio
For purposes of this paragraph—
(i)
In general
The term “housing cost/income ratio” means, with respect to any statistical area, the number determined by dividing—
(ii)
Applicable housing price ratio
For purposes of clause (i), the applicable housing price ratio for any area is the new housing price ratio or the existing housing price ratio, whichever results in the housing cost/income ratio being closer to 1.
(g)
Requirements related to arbitrage
(1)
In general
An issue meets the requirements of this subsection only if such issue meets the requirements of paragraph (2) of this subsection and, in the case of an issue described in subsection (b)(1), such issue also meets the requirements of paragraph (3) of this subsection. Such requirements shall be in addition to the requirements of section
148.
(2)
Effective rate of mortgage interest cannot exceed bond yield by more than 1.125 percentage points
(A)
In general
An issue shall be treated as meeting the requirements of this paragraph only if the excess of—
is not greater than 1.125 percentage points.
(B)
Effective rate of mortgage interest
(i)
In general
In determining the effective rate of interest on any mortgage for purposes of this paragraph, there shall be taken into account all fees, charges, and other amounts borne by the mortgagor which are attributable to the mortgage or to the bond issue.
(ii)
Specification of some of the amounts to be treated as borne by the mortgagor
For purposes of clause (i), the following items (among others) shall be treated as borne by the mortgagor:
(II)
the excess of the amounts received from any person other than the mortgagor by any person in connection with the acquisition of the mortgagor’s interest in the property over the usual and reasonable acquisition costs of a person acquiring like property where owner-financing is not provided through the use of qualified mortgage bonds or qualified veterans’ mortgage bonds.
(iii)
Specification of some of the amounts to be treated as not borne by the mortgagor
For purposes of clause (i), the following items shall not be taken into account:
(II)
any application fee, survey fee, credit report fee, insurance charge, or similar amount to the extent such amount does not exceed amounts charged in such area in cases where owner-financing is not provided through the use of qualified mortgage bonds or qualified veterans’ mortgage bonds.
Subclause (II) shall not apply to origination fees, points, or similar amounts.
(iv)
Prepayment assumptions
In determining the effective rate of interest—
(I)
it shall be assumed that the mortgage prepayment rate will be the rate set forth in the most recent applicable mortgage maturity experience table published by the Federal Housing Administration, and
(II)
prepayments of principal shall be treated as received on the last day of the month in which the issuer reasonably expects to receive such prepayments.
The Secretary may by regulation adjust the mortgage prepayment rate otherwise used in determining the effective rate of interest to the extent the Secretary determines that such an adjustment is appropriate by reason of the impact of subsection (m).
(3)
Arbitrage and investment gains to be used to reduce costs of owner-financing
(A)
In general
An issue shall be treated as meeting the requirements of this paragraph only if an amount equal to the sum of—
(i)
the excess of—
is paid or credited to the mortgagors as rapidly as may be practicable.
(B)
Investment gains and losses
For purposes of subparagraph (A), in determining the amount earned on all nonpurpose investments, any gain or loss on the disposition of such investments shall be taken into account.
(C)
Reduction where issuer does not use full 1.125 percentage points under paragraph (2)
(i)
In general
The amount required to be paid or credited to mortgagors under subparagraph (A) (determined under this paragraph without regard to this subparagraph) shall be reduced by the unused paragraph (2) amount.
(ii)
Unused paragraph (2) amount
For purposes of clause (i), the unused paragraph (2) amount is the amount which (if it were treated as an interest payment made by mortgagors) would result in the excess referred to in paragraph (2)(A) being equal to 1.125 percentage points. Such amount shall be fixed and determined as of the yield determination date.
(D)
Election to pay United States
Subparagraph (A) shall be satisfied with respect to any issue if the issuer elects before issuing the bonds to pay over to the United States—
(h)
Portion of loans required to be placed in targeted areas
(1)
In general
An issue meets the requirements of this subsection only if at least 20 percent of the proceeds of the issue which are devoted to providing owner-financing is made available (with reasonable diligence) for owner-financing of targeted area residences for at least 1 year after the date on which owner-financing is first made available with respect to targeted area residences.
(2)
Limitation
Nothing in paragraph (1) shall be treated as requiring the making available of an amount which exceeds 40 percent of the average annual aggregate principal amount of mortgages executed during the immediately preceding 3 calendar years for single-family, owner-occupied residences located in targeted areas within the jurisdiction of the issuing authority.
(i)
Other requirements
(1)
Mortgages must be new mortgages
(A)
In general
An issue meets the requirements of this subsection only if no part of the proceeds of such issue is used to acquire or replace existing mortgages.
(B)
Exceptions
Under regulations prescribed by the Secretary, the replacement of—
shall not be treated as the acquisition or replacement of an existing mortgage for purposes of subparagraph (A).
(C)
Exception for certain contract for deed agreements
(i)
In general
In the case of land possessed under a contract for deed by a mortgagor—
(II)
whose family income (as defined in subsection (f)(2)) is not more than 50 percent of applicable median family income (as defined in subsection (f)(4)),
the contract for deed shall not be treated as an existing mortgage for purposes of subparagraph (A).
(2)
Certain requirements must be met where mortgage is assumed
An issue meets the requirements of this subsection only if each mortgage with respect to which owner-financing has been provided under such issue may be assumed only if the requirements of subsections (c), (d), and (e), and the requirements of paragraph (1) or (3)(B) of subsection (f) (whichever applies), are met with respect to such assumption.
(j)
Targeted area residences
(1)
In general
For purposes of this section, the term “targeted area residence” means a residence in an area which is either—
(2)
Qualified census tract
(3)
Area of chronic economic distress
(A)
In general
For purposes of paragraph (1), the term “area of chronic economic distress” means an area of chronic economic distress—
(B)
Criteria to be used in approving State designations
The criteria used by the Secretary and the Secretary of Housing and Urban Development in evaluating any proposed designation of an area for purposes of this subsection shall be—
(i)
the condition of the housing stock, including the age of the housing and the number of abandoned and substandard residential units,
(ii)
the need of area residents for owner-financing under this section, as indicated by low per capita income, a high percentage of families in poverty, a high number of welfare recipients, and high unemployment rates,
(k)
Other definitions and special rules
For purposes of this section—
(2)
Statistical area
(B)
Metropolitan statistical area
The term “metropolitan statistical area” includes the area defined as such by the Secretary of Commerce.
(C)
Designation where adequate statistical information not available
For purposes of this paragraph, if there is insufficient recent statistical information with respect to a county (or portion thereof) described in subparagraph (A)(ii), the Secretary may substitute for such county (or portion thereof) another area for which there is sufficient recent statistical information.
(3)
Acquisition cost
(A)
In general
The term “acquisition cost” means the cost of acquiring the residence as a completed residential unit.
(4)
Qualified home improvement loan
The term “qualified home improvement loan” means the financing (in an amount which does not exceed $15,000)—
(5)
Qualified rehabilitation loan
(A)
In general
The term “qualified rehabilitation loan” means any owner-financing provided in connection with—
(ii)
the acquisition of a residence with respect to which there has been a qualified rehabilitation,
but only if the mortgagor to whom such financing is provided is the first resident of the residence after the completion of the rehabilitation.
(B)
Qualified rehabilitation
For purposes of subparagraph (A), the term “qualified rehabilitation” means any rehabilitation of a building if—
(i)
there is a period of at least 20 years between the date on which the building was first used and the date on which the physical work on such rehabilitation begins,
(ii)
in the rehabilitation process—
(I)
50 percent or more of the existing external walls of such building are retained in place as external walls,
(iii)
the expenditures for such rehabilitation are 25 percent or more of the mortgagor’s adjusted basis in the residence.
For purposes of clause (iii), the mortgagor’s adjusted basis shall be determined as of the completion of the rehabilitation or, if later, the date on which the mortgagor acquires the residence.
(6)
Determinations on actuarial basis
All determinations of yield, effective interest rates, and amounts required to be paid or credited to mortgagors or paid to the United States under subsection (g) shall be made on an actuarial basis taking into account the present value of money.
(7)
Single-family and owner-occupied residences include certain residences with 2 to 4 units
Except for purposes of subsection (h)(2), the terms “single-family” and “owner-occupied”, when used with respect to residences, include 2, 3, or 4 family residences—
Subparagraph (B) shall not apply to any 2-family residence if the residence is a targeted area residence and the family income of the mortgagor meets the requirement of subsection (f)(3)(B).
(8)
Cooperative housing corporations
(A)
In general
In the case of any cooperative housing corporation—
(B)
Adjustment to targeted area requirement
In the case of any issue to provide financing to a cooperative housing corporation with respect to cooperative housing not located in a targeted area, to the extent provided in regulations, such issue may be combined with 1 or more other issues for purposes of determining whether the requirements of subsection (h) are met.
(9)
Treatment of limited equity cooperative housing
(A)
Treatment as residential rental property
Except as provided in subparagraph (B), for purposes of this part—
(B)
Bonds subject to qualified mortgage bond termination date
Subparagraph (A) shall not apply to any bond issued after the date specified in subsection (a)(1)(B).
(C)
Limited equity cooperative housing
For purposes of this paragraph, the term “limited equity cooperative housing” means any dwelling unit which a person is entitled to occupy by reason of his ownership of stock in a qualified cooperative housing corporation.
(D)
Qualified cooperative housing corporation
For purposes of this paragraph, the term “qualified cooperative housing corporation” means any cooperative housing corporation (as defined in section
216
(b)(1)) if—
(i)
the consideration paid for stock held by any stockholder entitled to occupy any house or apartment in a building owned or leased by the corporation may not exceed the sum of—
(ii)
the value of the corporation’s assets (reduced by any corporate liabilities), to the extent such value exceeds the combined transfer values of the outstanding corporate stock, shall be used only for public benefit or charitable purposes, or directly to benefit the corporation itself, and shall not be used directly to benefit any stockholder, and
(10)
Treatment of resale price control and subsidy lien programs
(A)
In general
In the case of a residence which is located in a high housing cost area (as defined in section
143
(f)(5)), the interest of a governmental unit in such residence by reason of financing provided under any qualified program shall not be taken into account under this section (other than subsection (m)), and the acquisition cost of the residence which is taken into account under subsection (e) shall be such cost reduced by the amount of such financing.
(B)
Qualified program
For purposes of subparagraph (A), the term “qualified program” means any governmental program providing mortgage loans (other than 1st mortgage loans) or grants—
(i)
which restricts (throughout the 9-year period beginning on the date the financing is provided) the resale of the residence to a purchaser qualifying under this section and to a price determined by an index that reflects less than the full amount of any appreciation in the residence’s value, or
(ii)
which provides for deferred or reduced interest payments on such financing and grants the governmental unit a share in the appreciation of the residence,
but only if such financing is not provided directly or indirectly through the use of any tax-exempt private activity bond.
(11)
Special rules for residences located in disaster areas
In the case of a residence located in an area determined by the President to warrant assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of the Taxpayer Relief Act of 1997), this section shall be applied with the following modifications to financing provided with respect to such residence within 2 years after the date of the disaster declaration:
(B)
Subsections (e) and (f) (relating to purchase price requirement and income requirement) shall be applied as if such residence were a targeted area residence.
The preceding sentence shall apply only with respect to bonds issued after December 31, 1996, and before January 1, 1999.
(l)
Additional requirements for qualified veterans’ mortgage bonds
An issue meets the requirements of this subsection only if it meets the requirements of paragraphs (1), (2), and (3).
(1)
Veterans to whom financing may be provided
An issue meets the requirements of this paragraph only if each mortgagor to whom financing is provided under the issue is a qualified veteran.
(2)
Requirement that State program be in effect before June 22, 1984
An issue meets the requirements of this paragraph only if it is a general obligation of a State which issued qualified veterans’ mortgage bonds before June 22, 1984.
(3)
Volume limitation
(A)
In general
An issue meets the requirements of this paragraph only if the aggregate amount of bonds issued pursuant thereto (when added to the aggregate amount of qualified veterans’ mortgage bonds previously issued by the State during the calendar year) does not exceed the State veterans limit for such calendar year.
(B)
State veterans limit
(i)
In general
In the case of any State to which clause (ii) does not apply, the State veterans limit for any calendar year is the amount equal to—
(I)
the aggregate amount of qualified veterans bonds issued by such State during the period beginning on January 1, 1979, and ending on June 22, 1984 (not including the amount of any qualified veterans bond issued by such State during the calendar year (or portion thereof) in such period for which the amount of such bonds so issued was the lowest), divided by
(ii)
Alaska, Oregon, and Wisconsin
In the case of the following States, the State veterans limit for any calendar year is the amount equal to—
(iii)
Phasein
In the case of calendar years beginning before 2010, clause (ii) shall be applied by substituting for each of the dollar amounts therein an amount equal to the applicable percentage of such dollar amount. For purposes of the preceding sentence, the applicable percentage shall be determined in accordance with the following table:
| For Calendar Year: | Applicable percentage is: |
|---|---|
| 2006 | 20 percent |
| 2007 | 40 percent |
| 2008 | 60 percent |
| 2009 | 80 percent. |
(C)
Treatment of refunding issues
(i)
In general
For purposes of subparagraph (A), the term “qualified veterans’ mortgage bond” shall not include any bond issued to refund another bond but only if the maturity date of the refunding bond is not later than the later of—
(II)
the date 32 years after the date on which the refunded bond was issued (or in the case of a series of refundings, the date on which the original bond was issued).
The preceding sentence shall apply only to the extent that the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
(4)
Qualified veteran
For purposes of this subsection, the term “qualified veteran” means—
(5)
Special rule for certain short-term bonds
In the case of any bond—
(B)
which is authorized to be issued under O.R.S. 407.435 (as in effect on the date of the enactment of this subsection), to provide financing for property taxes, and
the amount taken into account under this subsection with respect to such bond shall be 1/15 of its principal amount.
(m)
Recapture of portion of Federal subsidy from use of qualified mortgage bonds and mortgage credit certificates
(1)
In general
If, during the taxable year, any taxpayer disposes of an interest in a residence with respect to which there is or was any federally-subsidized indebtedness for the payment of which the taxpayer was liable in whole or part, then the taxpayer’s tax imposed by this chapter for such taxable year shall be increased by the lesser of—
(3)
Federally-subsidized indebtedness
For purposes of this subsection—
(A)
In general
The term “federally-subsidized indebtedness” means any indebtedness if—
(i)
financing for the indebtedness was provided in whole or part from the proceeds of any tax-exempt qualified mortgage bond, or
(ii)
any credit was allowed under section
25 (relating to interest on certain home mortgages) to the taxpayer for interest paid or incurred on such indebtedness.
(4)
Recapture amount
For purposes of this subsection—
(A)
In general
The recapture amount with respect to any indebtedness is the amount equal to the product of—
(B)
Federally-subsidized amount
The federally-subsidized amount with respect to any indebtedness is the amount equal to 6.25 percent of the highest principal amount of the indebtedness for which the taxpayer was liable.
(C)
Holding period percentage
(i)
In general
The term “holding period percentage” means the percentage determined in accordance with the following table:
If the disposition occurs
during a year after the
The holding period
testing date which is:
percentage is:
The 1st such year
20
The 2d such year
40
The 3d such year
60
The 4th such year
80
The 5th such year
100
The 6th such year
80
The 7th such year
60
The 8th such year
40
The 9th such year
20.
(ii)
Retirements of indebtedness
If the federally-subsidized indebtedness is completely repaid during any year of the 4-year period beginning on the testing date, the holding period percentage for succeeding years shall be determined by reducing ratably to zero over the succeeding 5 years the holding period percentage which would have been determined under this subparagraph had the taxpayer disposed of his interest in the residence on the date of the repayment.
(D)
Testing date
The term “testing date” means the earliest date on which all of the following requirements are met:
(E)
Income percentage
The term “income percentage” means the percentage (but not greater than 100 percent) which—
(i)
the excess of—
The percentage determined under the preceding sentence shall be rounded to the nearest whole percentage point (or, if it includes a half of a percentage point, shall be increased to the nearest whole percentage point).
(5)
Adjusted qualifying income; modified adjusted gross income
(A)
Adjusted qualifying income
For purposes of paragraph (4), the term “adjusted qualifying income” means the product of—
(i)
the highest family income which (as of the date the financing was provided) would have met the requirements of subsection (f) with respect to the residents, and
(ii)
1.05 to the nth power where “n” equals the number of full years during the period beginning on the date the financing was provided and ending on the date of the disposition.
For purposes of clause (i), highest family income shall be determined without regard to subsection (f)(3)(A) and on the basis of the number of members of the taxpayer’s family as of the date of the disposition.
(B)
Modified adjusted gross income
For purposes of paragraph (4), the term “modified adjusted gross income” means adjusted gross income—
(i)
increased by the amount of interest received or accrued by the taxpayer during the taxable year which is excluded from gross income under section
103, and
(6)
Special rules relating to limitation on recapture amount based on gain realized
(A)
In general
For purposes of paragraph (1), gain shall be taken into account whether or not recognized, and the adjusted basis of the taxpayer’s interest in the residence shall be determined without regard to sections
1033
(b) and
1034
(e) (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) for purposes of determining gain.
(B)
Dispositions other than sales, exchanges, and involuntary conversions
In the case of a disposition other than a sale, exchange, or involuntary conversion, gain shall be determined as if the interest had been sold for its fair market value.
(C)
Involuntary conversions resulting from casualties
In the case of property which (as a result of its destruction in whole or in part by fire, storm, or other casualty) is compulsorily or involuntarily converted, paragraph (1) shall not apply to such conversion if the taxpayer purchases (during the period specified in section
1033
(a)(2)(B)) property for use as his principal residence on the site of the converted property. For purposes of subparagraph (A), the adjusted basis of the taxpayer in the residence shall not be adjusted for any gain or loss on a conversion to which this subparagraph applies.
(7)
Issuer to inform mortgagor of federally-subsidized amount and family income limits
The issuer of the issue which provided the federally-subsidized indebtedness to the mortgagor shall—
(A)
at the time of settlement, provide a written statement informing the mortgagor of the potential recapture under this subsection, and
(8)
Special rules
(A)
No basis adjustment
No adjustment shall be made to the basis of any property for the increase in tax under this subsection.
(B)
Special rule where 2 or more persons hold interests in residence
Except as provided in subparagraph (C) and in regulations prescribed by the Secretary, if 2 or more persons hold interests in any residence and are jointly liable for the federally-subsidized indebtedness, the recapture amount shall be determined separately with respect to their respective interests in the residence.
(C)
Transfers to spouses and former spouses
Paragraph (1) shall not apply to any transfer on which no gain or loss is recognized under section
1041. In any such case, the transferee shall be treated under this subsection in the same manner as the transferor would have been treated had such transfer not occurred.
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