The House Ways and Means Committee has approved a bill (H.R. 5720) introduced by committee Chairman Charles Rangel (D-N.Y.) to temporarily expand the low-income housing tax credit (LIHTC) and tax exempt housing bond programs, revise some of the program rules and requirements, and create a new tax credit for first-time homebuyers.
The bill would increase the annual per capita cap for the LIHTC by 20 cents in 2008 and 2009, raising the current-year ceiling to $2.20. It would also provide an aggregate increase of $10 billion in the tax-exempt private-activity bond cap for the 2008-2010 period, with the additional authority to be used for rental and ownership housing.
The additional housing bonds, which would be allocated among the states based on population, could be used to refinance adjustable-rate subprime home mortgage loans made after Dec. 31, 2001, and before Jan. 1, 2008, that the bond issuer determines would be reasonably likely to cause financial hardship for the borrower if not refinanced.
The housing tax credit provisions would eliminate the current difference in the credit rates for new and existing buildings and establish a minimum rate equal to the average of the rates for the previous 12 months. In addition, the definition of federally subsidized buildings, which can only use the 4 percent credit, would be narrowed to apply only to buildings financed by tax-exempt bonds. That means, for example, that HOME-assisted projects could still get the 9 percent credit.
In addition, federal grants would have to be subtracted from eligible basis only if they are received before the beginning of the 15-year tax credit compliance period.
The bill would also eliminate the ban on combining tax credits and Sec. 8 moderate-rehabilitation assistance. At the same time, it would raise the thresholds for rehabilitation to the greater of 20 percent of the basis of the building or $6,000 per unit, with the per-unit minimum to be adjusted annually for inflation. The current requirements are the greater of 10 percent of basis or $3,000 per unit.
Other changes would make state-designated projects eligible for the 30 percent basis increase now available for projects in difficult development areas and qualified census tracts, and would increase the allowable basis for community facility space to 15 percent of the first $5 million in eligible project basis and 10 percent of the remainder.
The bill would also coordinate some of the rules for tax-exempt and bondfinanced projects, including the next-available-unit rule, the student housing eligibility requirements, and the rules for single room occupancy projects. In addition, the legislation includes hold-harmless provisions for bond-financed rental housing projects that find their tenants suddenly exceeding income limits when area median incomes (AMIs) are reduced.
The first-time homebuyer tax credit would provide a credit of up to $7,500 to be taken over two years. The allowable credit would be phased out for incomes between $70,000 and $90,000 ($140,000 and $160,000 for those filing joint tax returns). The credit would be available for home purchases made between April 8, 2008, and April 1, 2009.
The credit would have to be paid back without interest over 15 years. The recapture would be accelerated if the property is disposed of or ceases to be the purchaser’s principal residence before the end of the 15-year period.
Foreclosure relief moves forward
The Senate has passed foreclosure relief legislation (H.R. 3221) that also includes additional housing bond authority, along with funds for state and local governments to redevelop abandoned and foreclosed homes, a tax credit for the purchase of foreclosed homes, and Federal Housing Administration (FHA) home mortgage modernization provisions.
Like the Rangel bill, the Senate legislation would provide an additional $10 billion in housing bond authority for 2008 through 2010 that could be used to refinance adjustable-rate subprime loans originated from 2002 through 2007. The Senate bill also provides a small-state minimum bond allocation of $90.3 million.
The Senate bill provides a tax credit of up to $7,000 for the purchase of foreclosed homes. The homes would have to be previously unoccupied residences for which a building permit was issued and construction began on or before Sept. 1, 2007, or homes occupied as a principal residence for at least one year before the foreclosure filing.
The tax credit would be taken over two years, and the remaining portion of the credit would be disallowed if the taxpayer sells the home or ceases to occupy it as his or her principal residence within 24 months after the purchase.
The bill would provide $3.92 billion for state and local governments to purchase and redevelop abandoned and foreclosed homes and residential properties. The funds would be allocated under a formula to be developed by the Department of Housing and Urban Development (HUD) based on the number and percentage of home foreclosures, homes financed by subprime loans, and homes in default or delinquency.
All of the funds would have to be used for families with incomes no higher than 120 percent of the AMI, and 25 percent of the funds would be targeted to families with incomes no higher than 50 percent of the AMI.
Funds couldn’t be used for projects involving the use of the power of eminent domain, except for public uses, which wouldn’t include economic development that primarily benefits private entities.
The FHA provisions include an increase in home mortgage limits to the lesser of 110 percent of the median area single-family house price or 132 percent of the 2007 conforming loan limit, which was $417,000. The new limits would go into effect after the even higher limits in the recently enacted economic stimulus bill expire.
The bill would also raise the minimum cash investment requirement for FHA financing from 3 to 3.5 percent of the appraised property value. At the same time, it would prohibit buyers from using funds from the seller—or any other party that benefits from the sale—to meet the minimum cash requirement.
The bill would also raise the upfront FHA home mortgage insurance premium from 2.25 to 3 percent (for first-time home buyers, it would rise from 2 to 2.75 percent) and ban the use of risk-based premiums.
In addition, the legislation would bar HUD from increasing FHA multifamily premiums above the Oct. 1, 2006, level unless HUD determines that an increase is needed to cover program costs. The ban would expire on Oct. 1, 2009.
Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.