26 U.S.C. § 143: 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. all proceeds of such issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences, such issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7), such issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b), and 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. the issuer in good faith attempted to meet all such requirements before the mortgages were executed, 95 percent or more of the proceeds devoted to owner-financing was devoted to residences with respect to which (at the time the mortgages were executed) all such requirements were met, and any failure to meet the requirements of such subsections is corrected within a reasonable period after such failure is first discovered. the issuer in good faith attempted to meet all such requirements, and any failure to meet such requirements is due to inadvertent error after taking reasonable steps to comply with such requirements. 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 no portion of the proceeds of the issue are used to make or finance any loan (other than a loan which is a nonpurpose investment within the meaning of section 148(f)(6)(A)) after the close of such period. 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. 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, the payment of the principal and interest on which is secured by the general obligation of a State, which is part of an issue which meets the requirements of subsections (c), (g), (i)(1), and ( l ), and which is part of an issue which does not meet the private business tests of paragraphs (1) and (2) of section 141(b). it is a single-family residence which can reasonably be expected to become the principal residence of the mortgagor within a reasonable time after the financing is provided, and it is located within the jurisdiction of the authority issuing the bond. 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. financing with respect to targeted area residences, qualified home improvement loans and qualified rehabilitation loans, financing with respect to land described in subsection (i)(1)(C) and the construction of any residence thereon, and in the case of bonds issued after the date of the enactment of this subparagraph, 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, 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). residences which have not been previously occupied, and residences which have been previously occupied. 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). ⅓ of the amount of such financing may be provided without regard to paragraph (1), and paragraph (1) shall be treated as satisfied with respect to the remainder of the owner financing if the family income of the mortgagor is 140 percent or less of the applicable median family income. the area median gross income for the area in which such residence is located, or the statewide median gross income for the State in which such residence is located. 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. 115 percent, and the amount by which the housing cost/income ratio for such area exceeds 0.2. 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. the applicable housing price ratio for such area, by the ratio which the area median gross income for such area bears to the median gross income for the United States. 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 average area purchase price (as defined in subsection (e)(2)) for residences described in subsection (e)(3)(A) which are located in such area bears to the average purchase price (determined in accordance with the principles of subsection (e)(2)) for residences so described which are located in the United States. 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). “100 percent” for “115 percent” each place it appears, and “120 percent” for “140 percent” each place it appears. 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. the effective rate of interest on the mortgages provided under the issue, over the yield on the issue, 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. all points or similar charges paid by the seller of the property, and 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. any expected rebate of arbitrage profits, and 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. 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 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 issue price (within the meaning of sections 1273 and 1274), and an expected maturity for the bonds which is consistent with the assumptions required under subparagraph (B)(iv). the amount earned on all nonpurpose investments (other than investments attributable to an excess described in this clause), over the amount which would have been earned if such investments were invested at a rate equal to the yield on the issue, plus any income attributable to the excess described in clause (i), 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. not less frequently than once each 5 years after the date of issue, an amount equal to 90 percent of the aggregate amount which would be required to be paid or credited to mortgagors under subparagraph (A) (and not theretofore paid to the United States), and not later than 60 days after the redemption of the last bond, 100 percent of such aggregate amount not theretofore paid 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. construction period loans, bridge loans or similar temporary initial financing, and in the case of a qualified rehabilitation, an existing mortgage, whose principal residence (within the meaning of section 121) is located on such land, and 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)), legal title does not pass to the purchaser until the consideration under the contract is fully paid to the seller, and the seller’s remedy for nonpayment is forfeiture rather than judicial or nonjudicial foreclosure. 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. a qualified census tract, or an area of chronic economic distress. 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. designated by the State as meeting the standards established by the State for purposes of this subsection, and the designation of which has been approved by the Secretary and the Secretary of Housing and Urban Development. the condition of the housing stock, including the age of the housing and the number of abandoned and substandard residential units, 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, the potential for use of owner-financing under this section to improve housing conditions in the area, and the existence of a housing assistance plan which provides a displacement program and a public improvements and services program. The term “mortgage” means any owner-financing. a metropolitan statistical area, and any county (or the portion thereof) which is not within a metropolitan statistical area. 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. usual and reasonable settlement or financing costs, the value of services performed by the mortgagor or members of his family in completing the residence, and the cost of land (other than land described in subsection (i)(1)(C)(i)) which has been owned by the mortgagor for at least 2 years before the date on which construction of the residence begins. In the case of a qualified rehabilitation loan, for purposes of subsection (e), the term “acquisition cost” includes the cost of the rehabilitation. of alterations, repairs, and improvements on or in connection with an existing residence by the owner thereof, but only of such items as substantially protect or improve the basic livability or energy efficiency of the property. a qualified rehabilitation, or the acquisition of a residence with respect to which there has been a qualified rehabilitation, 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, 50 percent or more of the existing external walls of such building are retained in place as external walls, 75 percent or more of the existing external walls of such building are retained in place as internal or external walls, and 75 percent or more of the existing internal structural framework of such building is retained in place, and the expenditures for such rehabilitation are 25 percent or more of the mortgagor’s adjusted basis in the residence. 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. one unit of which is occupied by the owner of the units, and which were first occupied at least 5 years before the mortgage is executed. each dwelling unit shall be treated as if it were actually owned by the person entitled to occupy such dwelling unit by reason of his ownership of stock in the corporation, and any indebtedness of the corporation allocable to the dwelling unit shall be treated as if it were indebtedness of the shareholder entitled to occupy the dwelling unit. 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). any limited equity cooperative housing shall be treated as residential rental property and not as owner-occupied housing, and bonds issued to provide such housing shall be subject to the same requirements and limitations as bonds the proceeds of which are to be used to provide qualified residential rental projects (as defined in section 142(d)). 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. the consideration paid for such stock by the first such stockholder, as adjusted by a cost-of-living adjustment determined by the Secretary, payments made by any stockholder for improvements to such house or apartment, and payments (other than amounts taken into account under subclause (I) or (II)) attributable to any stockholder to amortize the principal of the corporation’s indebtedness arising from the acquisition or development of real property, including improvements thereof, 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 at the time of issuance of the issue, such corporation makes an election under this paragraph. 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. 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 which provides for deferred or reduced interest payments on such financing and grants the governmental unit a share in the appreciation of the residence, Subsection (d) (relating to 3-year requirement) shall not apply. Subsections (e) and (f) (relating to purchase price requirement and income requirement) shall be applied as if such residence were a targeted area residence. 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. subsection (a)(2)(D)(i) shall be applied by substituting “12-month period” for “42-month period” each place it appears, subsection (d) (relating to 3-year requirement) shall not apply, and subsection (e) (relating to purchase price requirement) shall be applied by using the market value of the residence at the time of refinancing in lieu of the acquisition cost. 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 . rendered unsafe for use as a residence by reason of a federally declared disaster occurring before January 1, 2010 , or demolished or relocated by reason of an order of the government of a State or political subdivision thereof on account of a federally declared disaster occurring before such date, 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 cost of such repair or reconstruction, or $150,000. For purposes of this paragraph, the term “federally declared disaster” has the meaning given such term by section 165(h)(3)(C)(i). 1 1 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 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. 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 the number (not to exceed 5) of calendar years after 1979 and before 1985 during which the State issued qualified veterans bonds (determined by only taking into account bonds issued on or before June 22, 1984 ). $100,000,000 for the State of Alaska, $100,000,000 for the State of Oregon, and $100,000,000 for the State of Wisconsin. 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. the maturity date of the bond to be refunded, or 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). Clause (i) shall not apply to any bond issued to advance refund another bond. served on active duty, and applied for the financing before the date 25 years after the last date on which such veteran left active service. which has a term of 1 year or less, 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 which is redeemed at the end of such term, the recapture amount with respect to such indebtedness, or 50 percent of the gain (if any) on the disposition of such interest. any disposition by reason of death, and any disposition which is more than 9 years after the testing date. financing for the indebtedness was provided in whole or part from the proceeds of any tax-exempt qualified mortgage bond, or 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. 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)). the federally-subsidized amount with respect to the indebtedness, the holding period percentage, and the income percentage. 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 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. 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 indebtedness is federally-subsidized indebtedness. The taxpayer is liable in whole or part for payment of the indebtedness. the modified adjusted gross income of the taxpayer for the taxable year in which the disposition occurs, over the adjusted qualifying income for such taxable year, bears to $5,000. 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 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. 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 decreased by the amount of gain (if any) included in gross income of the taxpayer by reason of the disposition to which this subsection applies. 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. at the time of settlement, provide a written statement informing the mortgagor of the potential recapture under this subsection, and the federally-subsidized amount with respect to such indebtedness, and the adjusted qualifying income (as defined in paragraph (5)) for each category of family size for each year of the 9-year period beginning on the date the financing was provided. 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. The amendment made by subsection (a) [amending this section] shall apply to bonds issued after September 30, 1990 . The amendment made by subsection (b) [amending section 25 of this title ] shall apply to elections for periods after September 30, 1990 . The amendment made by subsection (c) [amending this section] shall take effect as if included in the amendments made by section 4005 of the Technical and Miscellaneous Revenue Act of 1988 [ Pub. L. 100–647 ].” Except as otherwise provided in this subsection, the amendments made by this section [amending this section and sections 25, 26, 148, 6045, and 6654 of this title] shall apply to bonds issued, and nonissued bond amounts elected, after December 31, 1988 . the amendments made by subsections (b) and (c) [amending this section] shall apply to financing provided after the date of issuance of the refunding issue, and the amendment made by subsection (f) [amending this section] shall apply to payments (including on loans made before such date of issuance) received on or after such date of issuance. Except as provided in subparagraph (B), the amendments made by subsection (g) [amending this section and sections 25, 26, 6045, and 6654 of this title] shall apply to financing provided, and mortgage credit certificates issued, after December 31, 1990 . before June 23, 1988 , or before August 1, 1988 , pursuant to a written application (made before July 1, 1988 ) for State bond volume authority.”