Mortgage revenue bonds: qualified mortgage bond and qualified veterans’ mortgage bond

For purposes of this title, the term “qualified mortgage bond” means a bond which is issued as part of a qualified mortgage issue. 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— 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— 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— Except as otherwise provided in this subparagraph, an issue shall not meet the requirement of subparagraph (A)(i) unless— Clause (i) (and clause (iv) of subparagraph (A)) shall not be construed to require amounts of less than $250,000 to be used to redeem bonds. The Secretary may by regulation treat related issues as 1 issue for purposes of the preceding sentence. For purposes of this part, the term “qualified veterans’ mortgage bond” means any bond— A residence meets the requirements of this subsection only if— An issue meets the requirements of this subsection only if all of the residences for which owner-financing is provided under the issue meet the requirements of paragraph (1). 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. For purposes of paragraph (1), the proceeds of an issue which are used to provide— For purposes of paragraph (1), a mortgagor’s interest in the residence with respect to which the financing is being provided shall not be taken into account. 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. 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). For purposes of this subsection, the determination of average area purchase price shall be made separately with respect to— 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. In the case of a targeted area residence, paragraph (1) shall be applied by substituting “110 percent” for “90 percent”. Paragraph (1) shall not apply with respect to any qualified home improvement loan. 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. 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). In the case of any financing provided under any issue for targeted area residences— For purposes of this subsection, the term “applicable median family income” means, with respect to a residence, whichever of the following is the greater: 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. 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— 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. For purposes of this paragraph— The term “housing cost/income ratio” means, with respect to any statistical area, the number determined by dividing— 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. The new housing price ratio for any area is the ratio which— The existing housing price ratio for any area is the ratio determined in accordance with clause (iii) but with respect to residences described in subsection (e)(3)(B). In the case of a mortgagor having a family of fewer than 3 individuals, the preceding provisions of this subsection shall be applied by substituting— 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. An issue shall be treated as meeting the requirements of this paragraph only if the excess of— 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. For purposes of clause (i), the following items (among others) shall be treated as borne by the mortgagor: For purposes of clause (i), the following items shall not be taken into account: In determining the effective rate of interest— For purposes of this subsection, the yield on an issue shall be determined on the basis of— An issue shall be treated as meeting the requirements of this paragraph only if an amount equal to the sum of— the excess of— 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. 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. 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. 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— The Secretary shall permit any simplified system of accounting for purposes of this paragraph which the issuer establishes to the satisfaction of the Secretary will assure that the purposes of this paragraph are carried out. For purposes of this paragraph, the term “nonpurpose investment” has the meaning given such term by section 148(f)(6)(A). 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. 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. 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. Under regulations prescribed by the Secretary, the replacement of— In the case of land possessed under a contract for deed by a mortgagor— For purposes of this subparagraph, the term “contract for deed” means a seller-financed contract for the conveyance of land under which— 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. For purposes of this section, the term “targeted area residence” means a residence in an area which is either— For purposes of paragraph (1), the term “qualified census tract” means a census tract in which 70 percent or more of the families have income which is 80 percent or less of the statewide median family income. The determination under subparagraph (A) shall be made on the basis of the most recent decennial census for which data are available. For purposes of paragraph (1), the term “area of chronic economic distress” means an area of chronic economic distress— 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— For purposes of this section— The term “mortgage” means any owner-financing. The term “statistical area” means— The term “metropolitan statistical area” includes the area defined as such by the Secretary of Commerce. 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. In the case of any portion of a State which is not within a county, subparagraphs (A)(ii) and (C) shall be applied by substituting for “county” an area designated by the Secretary which is the equivalent of a county. The term “acquisition cost” means the cost of acquiring the residence as a completed residential unit. The term “acquisition cost” does not include— In the case of a qualified rehabilitation loan, for purposes of subsection (e), the term “acquisition cost” includes the cost of the rehabilitation. The term “qualified home improvement loan” means the financing (in an amount which does not exceed $15,000)— The term “qualified rehabilitation loan” means any owner-financing provided in connection with— For purposes of subparagraph (A), the term “qualified rehabilitation” means any rehabilitation of a building if— in the rehabilitation process— 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. 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— In the case of any cooperative housing corporation— 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. The term “cooperative housing corporation” has the meaning given to such term by section 216(b)(1). Except as provided in subparagraph (B), for purposes of this part— Subparagraph (A) shall not apply to any bond issued after the date specified in subsection (a)(1)(B). 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. For purposes of this paragraph, the term “qualified cooperative housing corporation” means any cooperative housing corporation (as defined in section 216(b)(1)) if— 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— If a cooperative housing corporation makes an election under this paragraph, section 216 shall not apply with respect to such corporation (or any successor thereof) during the qualified project period (as defined in section 142(d)(2)). Subparagraph (A)(i) shall not apply to limited equity cooperative housing unless the cooperative housing corporation continues to be a qualified cooperative housing corporation at all times during the qualified project period (as defined in section 142(d)(2)). Any election under this paragraph, once made, shall be irrevocable. 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. For purposes of subparagraph (A), the term “qualified program” means any governmental program providing mortgage loans (other than 1st mortgage loans) or grants— 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: Notwithstanding the requirements of subsection (i)(1), the proceeds of a qualified mortgage issue may be used to refinance a mortgage on a residence which was originally financed by the mortgagor through a qualified subprime loan. In applying subparagraph (A) to any refinancing— The term “qualified subprime loan” means an adjustable rate single-family residential mortgage loan made after December 31, 2001, and before January 1, 2008, that the bond issuer determines would be reasonably likely to cause financial hardship to the borrower if not refinanced. This paragraph shall not apply to any bonds issued after December 31, 2010. At the election of the taxpayer, if the principal residence (within the meaning of section 121) of such taxpayer is— At the election of the taxpayer, if the principal residence (within the meaning of section 121) of such taxpayer was damaged as the result of a federally declared disaster occurring before January 1, 2010, any owner-financing provided in connection with the repair or reconstruction of such residence shall be treated as a qualified rehabilitation loan. The aggregate owner-financing to which clause (i) applies shall not exceed the lesser of— For purposes of this paragraph, the term “federally declared disaster” has the meaning given such term by section 165(h)(3)(C)(i).11 See References in Text note below. An election under this paragraph may not be revoked except with the consent of the Secretary. If a taxpayer elects the application of this paragraph, paragraph (11) shall not apply with respect to the purchase or financing of any residence by such taxpayer. An issue meets the requirements of this subsection only if it meets the requirements of paragraphs (1), (2), and (3). An issue meets the requirements of this paragraph only if each mortgagor to whom financing is provided under the issue is a qualified veteran. 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. 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. 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— In the case of the following States, the State veterans limit for any calendar year is the amount equal to— 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: 200620 percent 200740 percent 200860 percent 2009 80 percent. 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— Clause (i) shall not apply to any bond issued to advance refund another bond. For purposes of this subsection, the term “qualified veteran” means any veteran who— In the case of any bond— 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— Paragraph (1) shall not apply to— For purposes of this subsection— The term “federally-subsidized indebtedness” means any indebtedness if— Such term shall not include any indebtedness to the extent such indebtedness is federally-subsidized indebtedness solely by reason of being a qualified home improvement loan (as defined in subsection (k)(4)). For purposes of this subsection— The recapture amount with respect to any indebtedness is the amount equal to the product of— 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. The term “holding period percentage” means the percentage determined in accordance with the following table: If the disposition occurs during a year after the testing date which is:The holding period percentage is: The 1st such year20 The 2d such year40 The 3d such year60 The 4th such year80 The 5th such year100 The 6th such year80 The 7th such year60 The 8th such year40 The 9th such year20. 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. The term “testing date” means the earliest date on which all of the following requirements are met: The term “income percentage” means the percentage (but not greater than 100 percent) which— the excess of— For purposes of paragraph (4), the term “adjusted qualifying income” means the product of— For purposes of paragraph (4), the term “modified adjusted gross income” means adjusted gross income— 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. 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. 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. The issuer of the issue which provided the federally-subsidized indebtedness to the mortgagor shall— not later than 90 days after the date such indebtedness is provided, provide a written statement to the mortgagor specifying— No adjustment shall be made to the basis of any property for the increase in tax under this subsection. 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. 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. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this subsection, including regulations dealing with dispositions of partial interests in a residence.