To amend the Internal Revenue Code of 1986 to allow eligible veterans to use qualified veterans mortgage bonds to refinance home loans, and for other purposes.

Summary: Veterans Home Loan Refinance Opportunity Act of 2009 - Amends Internal Revenue Code provisions relating to tax-exempt veterans' mortgage bonds to permit: (1) proceeds from such bonds to refinance residences of veterans (currently, bond financing limited to new mortgages); (2) an annual inflation adjustment after 2010 to the amounts of veterans' mortgage bonds that states may issue; and (3) an increase from 1.125 % to 1.50% in the amount by which interest on veterans' mortgages may exceed the yield on a bond issue.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Veterans Home Loan Refinance 
Opportunity Act of 2009''.

SEC. 2. MODIFICATION OF QUALIFIED VETERANS' MORTGAGE BONDS PROGRAM TO 
              ALLOW ELIGIBLE VETERANS TO REFINANCE CURRENT HOME LOANS.

    (a) Elimination of Refinance Prohibition for Veterans' Bonds.--
Section 143(b) of the Internal Revenue Code of 1986 (relating to 
qualified veterans' mortgage bond defined) is amended--
            (1) in paragraph (1) by striking ``residences'' and 
        inserting ``residences or qualified refinancing loans''; and
            (2) in paragraph (3) by striking ``(i)(1),''.
    (b) Definition.--Section 143(l) of the Internal Revenue Code of 
1986 (relating to additional requirements for qualified veterans' 
mortgage bonds) is amended by adding at the end the following:
            ``(6) Qualified refinancing loan.--For purposes of this 
        subsection, the term `qualified refinancing loan' means a loan 
        that is used to refinance acquisition indebtedness (as defined 
        in subclauses (I) and (II) of section 163(h)(3)(B)(i)) for a 
        principal residence (within the meaning of section 121).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of enactment of this Act.

SEC. 3. INFLATION ADJUSTMENT OF STATE VETERANS LIMIT.

    (a) In General.--Paragraph (3) of section 143(l) of the Internal 
Revenue Code of 1986 (relating to volume limitation) is amended by 
adding at the end the following new subparagraph:
                    ``(D) Limitation adjustment based on inflation.--
                            ``(i) In general.--In the case of any 
                        calendar year after 2010, the limit determined 
                        under subparagraph (B) for a State shall be 
                        adjusted for such calendar year by multiplying 
                        such limit by the inflation adjustment factor 
                        for the calendar year.
                            ``(ii) Computation of inflation adjustment 
                        factor.--For purposes of clause (i)--
                                    ``(I) In general.--The Secretary 
                                shall, not later than each October 1, 
                                determine and publish in the Federal 
                                Register the inflation adjustment 
                                factor for the succeeding calendar year 
                                in accordance with this clause.
                                    ``(II) Inflation adjustment 
                                factor.--The term `inflation adjustment 
                                factor' means, with respect to a 
                                calendar year, a fraction the numerator 
                                of which is the CMHPI for the second 
                                quarter of the calendar year preceding 
                                the calendar year for which the 
                                adjustment is being made, and the 
                                denominator of which is the CMHPI for 
                                the second quarter of calendar year 
                                2009.
                                    ``(III) CMHPI.--The term `CMHPI' 
                                means the Conventional Mortgage Home 
                                Price Index compiled by Federal Home 
                                Loan Mortgage Corporation. The CMHPI 
                                for any quarter shall be the CMHPI 
                                first published for such quarter.
                                    ``(IV) Limitation.--No adjustment 
                                shall be made under clause (i) for any 
                                year in which the fraction in subclause 
                                (II) is less than 1.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 4. MODIFICATION OF MATERIALLY HIGHER YIELD FOR MORTGAGES MADE FROM 
              QUALIFIED VETERANS' MORTGAGE BONDS.

    (a) Mortgage Yield Limitation Measured Under General Program 
Obligation Provisions.--
            (1) Amendment.--Paragraph (3) of section 143(b) of the 
        Internal Revenue Code of 1986 (relating to qualified veterans' 
        mortgage bond defined) is amended by inserting ``(other than 
        paragraph (2) thereof)'' after ``(g)''.
            (2) In general.--Subparagraph (C) of section 143(g)(3) of 
        the Internal Revenue Code of 1986 (relating to requirements 
        related to arbitrage) is amended by striking ``1.125 percentage 
        points'' and inserting ``1.50 percentage points''.
            (3) Clerical amendment.--Section 143(g)(3) of such Code 
        (relating to requirements related to arbitrage) is amended in 
        the heading for subparagraph (C) by striking ``where issuer 
        does not use full 1.125 percentage points under paragraph (2)'' 
        and inserting ``for certain unused amounts''.
    (b) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.