II

★(Star Print)

106TH CONGRESS

1ST SESSION S. 1336

To amend the Internal Revenue Code of 1986 to provide a credit to promote

home ownership among low-income individuals.

IN THE SENATE OF THE UNITED STATES

JULY 1, 1999

Mr. REED (for himself, Mr. SCHUMER, and Mr. EDWARDS) introduced the

following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

a credit to promote home ownership among low-income

individuals.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Home Ownership Tax Credit Act of 1999’’.

6 (b) FINDINGS.—Congress finds the following:

7 (1) Home ownership is of primary importance

8 in building wealth in low-income families.

9 (2) 67 percent of the wealth that is owned by

10 non-elderly low-income households consists of the eq-
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1 uity in their residences and the median wealth of

2 such non-elderly low-income households is 12 times

3 greater than the median wealth for non-elderly rent4 ers with the same level of income.

5 (3) Only 45 percent of low-income households

6 live in owner-occupied homes, as compared to 66

7 percent of all households, and 86 percent of high-in8 come households.

9 (4) According to the Bureau of the Census, in

10 1993, 88 percent of all renters and 93 percent of

11 renters earning less than $20,000 could not afford

12 a house selling for half of the regional median house

13 price.

14 (5) There is a 23 percentage point difference in

15 home ownership rates between central cities and

16 suburban cities which is largely the result of the

17 concentration of low-income households in central

18 cities.

19 (6) The cost of the largest Federal tax incen20 tives for home ownership, the mortgage interest de21 duction and the real estate tax deduction, is equal

22 to approximately twice the amount of Federal ex23 penditures for direct Federal housing assistance

24 which benefits low-income households.
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1 (7) The mortgage interest deduction and the

2 real estate tax deduction have little value to low-in3 come households because the itemized tax deductions

4 of low-income households generally do not exceed the

5 standard deduction.

6 (8) Over 90 percent of the total benefits of the

7 mortgage interest deduction accrue to home buyers

8 with incomes greater than $40,000.

9 (9) Current provisions in the Federal tax code

10 to promote home ownership among low-income

11 households, such as the mortgage revenue bond pro12 gram, the mortgage credit certificate program, and

13 the low-income housing credit, fail to simultaneously

14 attack the twin constraints of lack of wealth and low

15 income that prevent many low-income households

16 from becoming homeowners.

17 (c) PURPOSES.—The purposes of this Act are—

18 (1) to establish a decentralized, market-driven

19 approach to increasing home ownership among low20 income households,

21 (2) to enable low-income households to over22 come the wealth and income constraints that fre23 quently prevent such households from becoming

24 homeowners, and
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1 (3) to reduce the disparities in home ownership

2 between low-income households and higher-income

3 households and between central cities and suburban

4 cities.

5 SEC. 2. HOME OWNERSHIP TAX CREDIT.

6 (a) IN GENERAL.—Subpart D of part IV of sub7 chapter A of chapter 1 of the Internal Revenue Code of

8 1986 (relating to business related credits) is amended by

9 adding at the end the following:

10 ‘‘SEC. 45D. HOME OWNERSHIP TAX CREDIT.

11 ‘‘(a) ALLOWANCE OF CREDIT.—

12 ‘‘(1) IN GENERAL.—For purposes of section 38,

13 the amount of the home ownership tax credit deter14 mined under this section for any taxable year in the

15 credit period shall be an amount equal to the appli16 cable percentage of the home ownership tax credit

17 amount allocated such taxpayer by a State housing

18 finance agency in the credit allocation year under

19 subsection (b).

20 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

21 of this section, the Secretary shall prescribe the ap22 plicable percentage for any year in which the tax23 payer is a qualified lender. Such percentage with re24 spect to any month in the credit period with respect

25 to such taxpayer shall be percentages which will
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1 yield over such period amounts of credit under para2 graph (1) which have a present value equal to 100

3 percent of the home ownership tax credit amount al4 located such taxpayer under subsection (b).

5 ‘‘(3) METHOD OF DISCOUNTING.—The present

6 value under paragraph (2) shall be determined in

7 the same manner as the low-income housing credit

8 under section 42(b)(2)(C).

9 ‘‘(b) ALLOCATION OF HOME OWNERSHIP TAX CRED10 IT AMOUNTS.—

11 ‘‘(1) AMOUNT OF CREDIT.—Each qualified

12 State shall receive a home ownership tax credit dol13 lar amount for each calendar year in an amount

14 equal to the sum of—

15 ‘‘(A) an amount equal to—

16 ‘‘(i) 40 cents multiplied by the State

17 population, multiplied by

18 ‘‘(ii) 10, plus

19 ‘‘(B) the unused home ownership tax credit

20 dollar amount (if any) of such State for the

21 preceding year.

22 ‘‘(2) QUALIFIED STATE.—For purposes of this

23 section—

24 ‘‘(A) IN GENERAL.—The term ‘qualified

25 State’ means a State with an approved alloca-
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1 tion plan to allocate home ownership tax credits

2 to qualified lenders through the State housing

3 finance agency.

4 ‘‘(B) APPROVED ALLOCATION PLAN.—For

5 purposes of this paragraph, the term ‘approved

6 allocation plan’ means a written plan, certified

7 by the Secretary, which includes—

8 ‘‘(i) selection criteria for the allocation

9 of credits to qualified lenders—

10 ‘‘(I) based on a process in which

11 lenders submit bids for the value of

12 the credit, and

13 ‘‘(II) which gives priority to

14 qualified lenders with qualified home

15 ownership tax credit loans which are

16 prepaid during a calendar year, for

17 credit allocations in the succeeding

18 calendar year,

19 ‘‘(ii) an assurance that the State will

20 not allocate in excess of 10 percent of the

21 home ownership tax credit amount for the

22 calendar year for qualified home ownership

23 tax credit loans which are neighborhood re24 vitalization project loans,
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1 ‘‘(iii) a procedure that the agency (or

2 an agent or other private contractor of

3 such agency) will follow in monitoring for

4 noncompliance with the provisions of this

5 section and in notifying the Internal Rev6 enue Service of such noncompliance with

7 respect to which such agency becomes

8 aware, and

9 ‘‘(iv) such other assurances as the

10 Secretary may require.

11 ‘‘(3) QUALIFIED LENDER.—For purposes of

12 this section, the term ‘qualified lender’ means a

13 lender which—

14 ‘‘(A) is an insured depository institution

15 (as defined in section 3 of the Federal Deposit

16 Insurance Act), insured credit union (as defined

17 in section 101 of the Federal Credit Union

18 Act), community development financial institu19 tion (as defined in section 103 of the Commu20 nity Development Banking and Financial Insti21 tutions Act of 1994 (12 U.S.C. 4702)), or non22 profit community development corporation (as

23 defined in section 613 of the Community Eco24 nomic Development Act of 1981 (42 U.S.C.

25 9802)),
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1 ‘‘(B) makes available, through such lender

2 or the lender’s designee, pre-purchase home3 ownership counseling for mortgagors, and

4 ‘‘(C) during the 1-year period beginning on

5 the date of the credit allocation, originates not

6 less than 100 qualified home ownership tax

7 credit loans in an aggregate amount not less

8 than the amount of the bid of such lender for

9 such credit allocation.

10 ‘‘(4) CARRYOVER OF CREDIT.—A home owner11 ship tax credit amount received by a State for any

12 calendar year and not allocated in such year shall

13 remain available to be allocated in the succeeding

14 calendar year.

15 ‘‘(5) POPULATION.—For purposes of this sec16 tion, population shall be determined in accordance

17 with section 146(j).

18 ‘‘(6) COST-OF-LIVING ADJUSTMENT.—

19 ‘‘(A) IN GENERAL.—In the case of a cal20 endar year after 2000, the 40 cent amount con21 tained in paragraph (1)(A)(i) shall be increased

22 by an amount equal to—

23 ‘‘(i) such amount, multiplied by

24 ‘‘(ii) the cost-of-living adjustment de25 termined under section 1(f)(3) for such
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1 calendar year by substituting ‘calendar

2 year 1999’ for ‘calendar year 1992’ in sub3 paragraph (B) thereof.

4 ‘‘(B) ROUNDING.—If any amount as ad5 justed under subparagraph (A) is not a multiple

6 of 5 cents, such amount shall be rounded to the

7 next lowest multiple of 5 cents.

8 ‘‘(c) QUALIFIED HOME OWNERSHIP TAX CREDIT

9 LOAN DEFINED.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The term ‘qualified home

11 ownership tax credit loan’ means a loan originated

12 and funded by a qualified lender which is secured by

13 a second lien on a residence, but only if—

14 ‘‘(A) the requirements of subsections (d),

15 (e), and (f) are met,

16 ‘‘(B) subject to subparagraphs (F), (H),

17 and (I), the proceeds from such loan are ap18 plied exclusively—

19 ‘‘(i) to acquire such residence, or

20 ‘‘(ii) to substantially improve such

21 residence in connection with a neighbor22 hood revitalization project,

23 ‘‘(C) the principal amount of the loan is

24 equal to an amount which is—
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1 ‘‘(i) not less than 18 percent of the

2 purchase price of the residence securing

3 the loan, and

4 ‘‘(ii) not more than the lesser of—

5 ‘‘(I) 22 percent of such purchase

6 price, or

7 ‘‘(II) $25,000,

8 ‘‘(D) in the case of a neighborhood revital9 ization project loan, subparagraph (C) is ap10 plied by substituting—

11 ‘‘(i) ‘purchase price or appraised

12 value’ for ‘purchase price’, and

13 ‘‘(ii) ‘$40,000’ for ‘$25,000’,

14 ‘‘(E) the loan is—

15 ‘‘(i) amortized over a period of not

16 more than 30 years (or any lesser period

17 of time as determined by the lender or the

18 State housing finance agency (as applica19 ble)), or

20 ‘‘(ii) described in paragraph (2),

21 ‘‘(F) the proceeds of such loan are not

22 used for settlement or other closing costs of the

23 transaction in an amount in excess of 4 percent

24 of the purchase price of the residence securing

25 the loan,
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1 ‘‘(G) the rate of interest of the loan does

2 not exceed the greater of—

3 ‘‘(i) the excess of—

4 ‘‘(I) the prime lending rate in ef5 fect as of the date on which the loan

6 is originated, over

7 ‘‘(II) 5.5 percent, or

8 ‘‘(ii) 3 percent,

9 ‘‘(H) the origination fee paid with respect

10 to the loan does not cause the aggregate

11 amount of origination fees paid with respect to

12 any loans secured by the residence—

13 ‘‘(i) in the case of a neighborhood re14 vitalization project loan, to exceed 1 per15 cent of the appraised value of the residence

16 which secures the loan, and

17 ‘‘(ii) in the case of any other loan, to

18 exceed 2 percent of the appraised value of

19 such residence, and

20 ‘‘(I) the servicing fees of such loan—

21 ‘‘(i) are allocated from interest pay22 ments made with respect to the loan, and

23 ‘‘(ii) may not—
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1 ‘‘(I) in the case of a neighbor2 hood revitalization project loan, ex3 ceed a total of 38 basis points, and

4 ‘‘(II) in the case of any other

5 loan, when added to such fees of any

6 other loan secured by the residence,

7 exceed a total of 63 basis points.

8 ‘‘(2) BALLOON PAYMENT LOAN.—

9 ‘‘(A) IN GENERAL.—A loan is described in

10 this paragraph if such loan—

11 ‘‘(i) meets the requirements of sub12 paragraphs (B) and (C),

13 ‘‘(ii) is for a period of 25 years and,

14 except as provided in clause (iv), no pay15 ment is due on such loan until the sooner

16 of—

17 ‘‘(I) the end of such period, or

18 ‘‘(II) the date on which the resi19 dence which secures the loan is dis20 posed of,

21 ‘‘(iii) does not prohibit early repay22 ment of such loan, and

23 ‘‘(iv) requires payment on such loan if

24 the mortgagor receives any portion of the

25 equity of such residence as part of a refi-
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1 nancing of any loan secured by such resi2 dence.

3 ‘‘(B) INTEREST.—Notwithstanding para4 graph (1)(G), the rate of interest of the loan is

5 zero percent.

6 ‘‘(C) SERVICING FEES.—Notwithstanding

7 paragraph (1)(I), there shall be no servicing

8 fees in connection with the loan.

9 ‘‘(3) INDEX OF AMOUNT.—

10 ‘‘(A) IN GENERAL.—In the case of a cal11 endar year after 2000, the amounts under sub12 paragraphs (C) and (D) of paragraph (1) shall

13 be increased by an amount equal to—

14 ‘‘(i) such amount, multiplied by

15 ‘‘(ii) the housing price adjustment for

16 such calendar year.

17 ‘‘(B) HOUSING PRICE ADJUSTMENT.—For

18 purposes of subparagraph (A), the housing

19 price adjustment for any calendar year is the

20 percentage (if any) by which—

21 ‘‘(i) the housing price index for the

22 preceding calendar year, exceeds

23 ‘‘(ii) the housing price index for cal24 endar year 2000.
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1 ‘‘(C) HOUSING PRICE INDEX.—For pur2 poses of subparagraph (B), the housing price

3 index means the housing price index published

4 by the Federal Housing Finance Board (as es5 tablished in section 2A of the Federal Home

6 Loan Bank Act (12 U.S.C. 1422a)) for the cal7 endar year.

8 ‘‘(d) MORTGAGOR.—

9 ‘‘(1) IN GENERAL.—A loan meets the require10 ments of this subsection if it is made to a

11 mortgagor—

12 ‘‘(A) whose family income for the year in

13 which the mortgagor applies for the loan is 80

14 percent or less of the area median gross income

15 for the area in which the residence which se16 cures the mortgage is located,

17 ‘‘(B) for whom the loan would not result in

18 a housing debt-to-income ratio, with respect to

19 the residence securing the loan, or total debt-to20 income ratio which is greater than the guide21 lines set by the Federal Housing Administra22 tion (or any other ratio as determined by the

23 State housing finance agency or lender if such

24 ratio is less than such guidelines), and
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1 ‘‘(C) who attends pre-purchase home2 ownership counseling provided by the qualified

3 lender or the lender’s designee.

4 ‘‘(2) DETERMINATION OF FAMILY INCOME.—

5 For purposes of this subsection and subsection (h),

6 the family income of a mortgagor and area median

7 gross income shall be determined in accordance with

8 section 143(f)(2).

9 ‘‘(e) RESIDENCE REQUIREMENTS.—A loan meets the

10 requirements of this subsection if it is secured by a resi11 dence that is—

12 ‘‘(1) a single-family residence (including a man13 ufactured home (within the meaning of section

14 25(e)(10))) which is the principal residence (within

15 the meaning of section 121) of the mortgagor, or

16 can reasonably be expected to become the principal

17 residence of the mortgagor within a reasonable time

18 after the financing is provided,

19 ‘‘(2) purchased by the mortgagor with a down

20 payment in an amount not less than the lesser of—

21 ‘‘(A) 2 percent of the purchase price, or

22 ‘‘(B) $1,000, and

23 ‘‘(3) in the case of a mortgagor with a family

24 income greater than 50 percent of the area median

25 gross income, as determined under subsection
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1 (d)(1)(A), not financed in connection with a quali2 fied mortgage issued under section 143.

3 ‘‘(f) DEFINITION AND SPECIAL RULES RELATING TO

4 CREDIT PERIOD.—

5 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes

6 of this section, the term ‘credit period’ means the

7 period of 10 taxable years beginning with the tax8 able year in which a home ownership tax credit

9 amount is allocated to the taxpayer.

10 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

11 PERIOD.—

12 ‘‘(A) IN GENERAL.—The credit allowable

13 under subsection (a) with respect to any tax14 payer for the 1st taxable year of the credit pe15 riod shall be determined by substituting for the

16 applicable percentage under subsection (a)(2)

17 the fraction—

18 ‘‘(i) the numerator of which is the

19 sum of the applicable percentages deter20 mined under subsection (a)(2) as of the

21 close of each full month of such year, dur22 ing which the taxpayer was a qualified

23 lender, and

24 ‘‘(ii) the denominator of which is 12.
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1 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL2 LOWED IN 11TH YEAR.—Any reduction by rea3 son of subparagraph (A) in the credit allowable

4 (without regard to subparagraph (A)) for the

5 1st taxable year of the credit period shall be al6 lowable under subsection (a) for the 1st taxable

7 year following the credit period.

8 ‘‘(3) DISPOSITION OF HOME OWNERSHIP TAX

9 CREDIT LOANS.—If a qualified home ownership tax

10 credit loan is disposed of during any year for which

11 a credit is allowable under subsection (a), such cred12 it shall be allocated between the parties on the basis

13 of the number of days during such year the mort14 gage was held by each and the portion of the total

15 credit allocated to the qualified lender which is at16 tributable to such mortgage.

17 ‘‘(g) LOSS OF CREDIT.—If, during the taxable year,

18 a qualified home ownership tax credit loan is repaid prior

19 to the expiration of the credit period with respect to such

20 loan, the amount of the home ownership tax credit attrib21 utable to such loan is no longer available under subsection

22 (a). For purposes of the preceding sentence, the tax credit

23 is allowable for the portion of the year in which such re24 payment occurs for which the loan is outstanding, deter-
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1 mined in the same manner as provided in subsection

2 (f)(2)(A).

3 ‘‘(h) RECAPTURE OF PORTION OF FEDERAL SUBSIDY

4 FROM HOME-OWNER.—

5 ‘‘(1) IN GENERAL.—If, during the taxable year,

6 any taxpayer described in paragraph (3) disposes of

7 an interest in a residence with respect to which a

8 home ownership tax credit amount applies, then the

9 taxpayer’s tax imposed by this chapter for such tax10 able year shall be increased by 50 percent of the

11 gain (if any) on the disposition of such interest.

12 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

13 apply to any disposition—

14 ‘‘(A) by reason of death,

15 ‘‘(B) which is made on a date that is more

16 than 10 years after the date on which the quali17 fied home ownership tax credit loan secured by

18 such residence was made, or

19 ‘‘(C) in which the purchaser of the resi20 dence assumes the qualified home ownership

21 tax credit loan secured by the residence.

22 ‘‘(3) INCOME LIMITATION.—A taxpayer is de23 scribed in this paragraph if, on the date of the dis24 position, the family income of the mortgagor is 115

25 percent or more of the area median gross income as
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1 determined under subsection (d)(1)(A) for the year

2 in which the disposition occurs.

3 ‘‘(4) SPECIAL RULES RELATING TO LIMITATION

4 ON RECAPTURE AMOUNT BASED ON GAIN REAL5 IZED.—For purposes of this subsection, rules similar

6 to the rules of section 143(m)(6) shall apply.

7 ‘‘(5) LENDER TO INFORM MORTGAGOR OF PO8 TENTIAL RECAPTURE.—The qualified lender which

9 makes a qualified home ownership tax credit loan to

10 a mortgagor shall, at the time of settlement, provide

11 a written statement informing the mortgagor of the

12 potential recapture under this subsection.

13 ‘‘(6) SPECIAL RULES.—For purposes of this

14 subsection, rules similar to the rules of section

15 143(m)(8) shall apply.

16 ‘‘(i) OTHER DEFINITIONS.—

17 ‘‘(1) NEIGHBORHOOD REVITALIZATION

18 PROJECT LOAN.—

19 ‘‘(A) IN GENERAL.—The term ‘neighbor20 hood revitalization project loan’ means a loan

21 secured by a second lien on a residence, the

22 proceeds of which are used to substantially im23 prove such residence in connection with a

24 neighborhood revitalization project.
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1 ‘‘(B) NEIGHBORHOOD REVITALIZATION

2 PROJECT.—The term ‘neighborhood revitaliza3 tion project’ means a project of sufficient size

4 and scope to alleviate physical deterioration and

5 stimulate investment in—

6 ‘‘(i) a geographic location within the

7 jurisdiction of a unit of local government

8 (but not the entire jurisdiction) designated

9 in comprehensive plans, ordinances, or

10 other documents as a neighborhood, vil11 lage, or similar geographic designation, or

12 ‘‘(ii) the entire jurisdiction of a unit

13 of local government if the population of

14 such jurisdiction is not in excess of 25,000.

15 ‘‘(2) STATE.—The term ‘State’ includes a pos16 session of the United States.

17 ‘‘(3) STATE HOUSING FINANCE AGENCY.—The

18 term ‘State housing finance agency’ means the pub19 lic agency, authority, corporation, or other instru20 mentality of a State that has the authority to pro21 vide residential mortgage loan financing throughout

22 the State.

23 ‘‘(j) CERTIFICATION AND OTHER REPORTS TO THE

24 SECRETARY.—
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1 ‘‘(1) CERTIFICATION WITH RESPECT TO STATE

2 ALLOCATION OF HOME OWNERSHIP TAX CREDITS.—

3 The Secretary may, upon a finding of noncompli4 ance, revoke the certification of a qualified State and

5 revoke any qualified home ownership tax credit

6 amounts allocated to such State or allocated by such

7 State to a qualified lender.

8 ‘‘(2) ANNUAL REPORT FROM HOUSING FINANCE

9 AGENCIES.—Each State housing finance agency

10 which allocates any home ownership tax credit

11 amount to any qualified lender for any calendar year

12 shall submit to the Secretary (at such time and in

13 such manner as the Secretary shall prescribe) an an14 nual report specifying—

15 ‘‘(A) the home ownership tax credit

16 amount allocated to each qualified lender for

17 such year, and

18 ‘‘(B) with respect to each qualified

19 lender—

20 ‘‘(i) the principal amount of the ag21 gregate qualified home ownership tax cred22 it loans made by such lender in such year

23 and the outstanding amount of such loans

24 in such year, and
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1 ‘‘(ii) the number of qualified home

2 ownership tax credit loans made by such

3 lender in such year.

4 The penalty under section 6652(j) shall apply to any

5 failure to submit the report required by this para6 graph on the date prescribed therefore.

7 ‘‘(k) REGULATIONS.—The Secretary shall prescribe

8 such regulations as may be necessary or appropriate to

9 carry out the purposes of this section.’’

10 (b) LIMITATION ON CARRYBACK OF UNUSED CRED11 IT.—Subsection (d) of section 39 of the Internal Revenue

12 Code of 1986 (relating to carryback and carryforward of

13 unused credits) is amended by adding at the end the fol14 lowing:

15 ‘‘(9) NO CARRYBACK OF HOME OWNERSHIP TAX

16 CREDITS BEFORE EFFECTIVE DATE.—No portion of

17 the unused business credit for any taxable year

18 which is attributable to the home ownership tax

19 credit determined under section 45D may be carried

20 back to a taxable year ending before the date of the

21 enactment of section 45D.’’

22 (c) CONFORMING AMENDMENTS.—

23 (1) Section 38(b) of the Internal Revenue Code

24 of 1986 is amended—
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1 (A) by striking ‘‘plus’’ at the end of para2 graph (11),

3 (B) by striking the period at the end of

4 paragraph (12), and inserting ‘‘, plus’’, and

5 (C) by adding at the end the following:

6 ‘‘(13) the home ownership tax credit determined

7 under section 45D.’’

8 (2) The table of sections for subpart D of part

9 IV of subchapter A of chapter 1 is amended by add10 ing at the end the following:

‘‘Sec. 45D. Home ownership tax credit.’’

11 (d) EFFECTIVE DATE.—The amendments made by

12 this section apply to calendar years after 1999.

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