First-time Homebuyer Affordability Act of 1993

Summary: First-time Homebuyer Affordability Act of 1993 - Amends the Internal Revenue Code to make the tax on prohibited transactions inapplicable to a home equity participation arrangement.  Describes such arrangement as one in which the eligible participant in an individual retirement plan directs the plan trustee to acquire an ownership interest in all or part of any dwelling unit which within a reasonable period of time is to be used as the principal residence for a first-time homebuyer. Requires such ownership interest to be a fee interest which requires full repayment.  Describes the first-time homebuyer as an eligible participant or a qualified family member (child, parent, grandparent, or spouse) who had no present ownership interest in a principal residence during the 36-month period before the date of the arrangement. 
Allows the use of amounts in an individual retirement plan to make loans to purchase a home for a first-time homebuyer on behalf of an eligible participant or a qualified family member. Requires the repayment of first-time homebuyer loans within 15 years.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``First-time Homebuyer Affordability 
Act of 1993''.

SEC. 2. FINDINGS AND POLICY.

    (a) Findings.--The Congress finds that--
            (1) it is desirable to make funds available from individual 
        retirement plans to encourage first time home ownership, and
            (2) the tax and penalty on the premature withdrawal of 
        funds from individual retirement plans are substantial 
        impediments to making such funds available for that purpose.
    (b) Policy.--It is the policy of the Congress to remove impediments 
to home investment by first-time homebuyers by permitting owners of 
individual retirement plans to direct the trustees of such plans to 
invest plan funds as home equity or debt in the homes of family members 
who are first-time homebuyers.

SEC. 3. CERTAIN RETIREMENT PLANS AUTHORIZED TO MAKE EQUITY INVESTMENTS 
              IN PRINCIPAL RESIDENCES FOR FIRST-TIME HOMEBUYERS.

    (a) Exemption From Prohibited Transaction Rules.--Section 4975 of 
the Internal Revenue Code of 1986 (relating to tax on prohibited 
transactions) is amended by redesignating subsections (h) and (i) as 
subsections (i) and (j), respectively, and by inserting after 
subsection (g) the following new subsection:
    ``(h) Special Rule for Home Equity Participation Arrangements.--
            ``(1) In general.--The prohibitions provided in subsection 
        (c) shall not apply to any qualified home equity participation 
        arrangement.
            ``(2) Qualified home equity participation arrangement.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `qualified home equity 
                participation arrangement' means an arrangement--
                            ``(i) under which the trustee of an 
                        individual retirement plan, at the direction of 
                        the eligible participant, shall acquire an 
                        ownership interest in all or any part of any 
                        dwelling unit which within a reasonable period 
                        of time (determined at the time the arrangement 
                        is executed) is to be used as the principal 
                        residence for a first-time homebuyer, and
                            ``(ii) which meets the requirements of 
                        subparagraph (B) of this paragraph.
                    ``(B) Ownership interest requirement.--An 
                arrangement shall meet the requirements of this 
                subparagraph if the ownership interest described in 
                subparagraph (A)--
                            ``(i) is a fee interest in such property 
                        equal to the percentage which--
                                    ``(I) the amount invested by the 
                                trustee of the individual retirement 
                                plan, bears to
                                    ``(II) the acquisition cost of or 
                                total equity in the dwelling unit,
                             ``(ii) by its terms requires repayment in 
                        full upon--
                                    ``(I) the sale or other transfer of 
                                the dwelling unit, or
                                    ``(II) the cessation of use as the 
                                principal residence of the first-time 
                                homebuyer, and
                            ``(iii) may not be used as security for any 
                        loan secured by any interest in the dwelling 
                        unit.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Eligible participant.--The term `eligible 
                participant' means an individual on whose behalf an 
                individual retirement plan is established.
                    ``(B) First-time homebuyer.--The term `first-time 
                homebuyer' means an individual who--
                            ``(i) is an eligible participant or 
                        qualified family member, and
                            ``(ii) had (and if married, such 
                        individual's spouse had) no present ownership 
                        interest in a principal residence at any time 
                        during the 36-month period before the date of 
                        the arrangement.
                    ``(C) Qualified family member.--The term `qualified 
                family member' means a child (as defined in section 
                151(c)(3)), parent, or grandparent of the eligible 
                participant (or such participant's spouse). Section 
                152(b)(2) shall apply in determining if an individual 
                is a parent or grandparent of an eligible participant 
                (or such participant's spouse).
                    ``(D) Acquisition; etc.--
                            ``(i) Acquisition.--The term `acquisition' 
                        includes construction, reconstruction, and 
                        improvement related to such acquisition.
                            ``(ii) Acquisition cost.--The term 
                        `acquisition cost' has the meaning given such 
                        term by section 143(k)(3).
                    ``(E) Principal Residence.--The term `principal 
                residence' has the same meaning as when used in section 
                1034.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to arrangements entered into after December 31, 1992.

SEC. 4. LOANS USED TO ACQUIRE PRINCIPAL RESIDENCES FOR FIRST-TIME 
              HOMEBUYERS.

    (a) Individual Retirement Plans.--Section 408(e) of the Internal 
Revenue Code of 1986 (relating to tax treatment of accounts and 
annuities) is amended by adding at the end thereof the following new 
paragraph:
            ``(7) Loans used to purchase a home for first-time 
        homebuyers.--
                    ``(A) In general.--Paragraphs (3) and (4) shall not 
                apply to any qualified home purchase loan made, or 
                secured, by an individual retirement plan.
                    ``(B) Qualified home purchase loan.--For purposes 
                of this paragraph, the term `qualified home purchase 
                loan' means a loan--
                            ``(i) made by the trustee of an individual 
                        retirement plan at the direction of the 
                        individual on whose behalf such plan is 
                        established,
                            ``(ii) the proceeds of which are used for 
                        the acquisition of a dwelling unit which within 
                        a reasonable period of time (determined at the 
                        time the loan is made) is to be used as the 
                        principal residence for a first-time homebuyer,
                            ``(iii) which is secured by the dwelling 
                        unit,
                            ``(iv) which by its terms requires 
                        repayment in full within 15 years after the 
                        date of acquisition of the dwelling unit,
                            ``(v) which by its terms treats any amount 
                        remaining unpaid in the taxable year beginning 
                        after the period described in clause (iv) as 
                        distributed in such taxable year to the 
                        individual on whose behalf such plan is 
                        established and subject to section 72(t)(1), 
                        and
                            ``(vi) which bears interest from the date 
                        of the loan at a rate not less than the rate 
                        for comparable United States Treasury 
                        obligations on such date.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' has the meaning given 
                        such term by section 4975(h)(3)(B).
                            ``(ii) Acquisition.--The term `acquisition' 
                        has the meaning given such term by section 
                        4975(h)(3)(D)(i).
                            ``(iii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iv) Date of acquisition.--The term `date 
                        of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (B) applies is 
                                entered into, or
                                    ``(II) on which construction, 
                                reconstruction, or improvement of such 
                                a principal residence is commenced.''.
    (b) Prohibited Transaction.--Section 4975(d) of the Internal 
Revenue Code of 1986 (relating to exemptions from tax on prohibited 
transactions) is amended by striking ``or'' at the end of paragraph 
(14), by striking the period at the end of paragraph (15) and inserting 
``; or'', and by inserting after paragraph (15) the following new 
paragraph:
            ``(16) any loan that is a qualified home purchase loan (as 
        defined in section 408(e)(7)(B)).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to loans made after December 31, 1992.