I

106TH CONGRESS

2D SESSION H. R. 5084

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

home ownership among low-income individuals.

IN THE HOUSE OF REPRESENTATIVES

JULY 27, 2000

Ms. ROYBAL-ALLARD (for herself, Mr. CAPUANO, Ms. CARSON, Mrs. CLAYTON, Mr. CLYBURN, Mr. DEFAZIO, Mr. FATTAH, Mr. FILNER, Mr.

FRANK of Massachusetts, Mr. FROST, Mr. HINCHEY, Ms. LEE, Mr. MARTINEZ, Mr. MATSUI, Ms. MILLENDER-MCDONALD, Mrs. NAPOLITANO,

Mr. PASTOR, Mr. PRICE of North Carolina, and Mrs. THURMAN) introduced the following bill; which was referred to the Committee on Ways

and Means

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 2000’’.

6 (b) FINDINGS.—Congress finds the following:
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1 (1) Home ownership is of primary importance

2 in building wealth in low-income families.

3 (2) 67 percent of the wealth that is owned by

4 non-elderly low-income households consists of the eq5 uity in their residences and the median wealth of

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

7 greater than the median wealth for non-elderly rent8 ers with the same level of income.

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

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

11 percent of all households, and 86 percent of high-in12 come households.

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

14 1993, 88 percent of all renters and 93 percent of

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

16 a house selling for half of the regional median house

17 price.

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

19 home ownership rates between central cities and

20 suburban cities which is largely the result of the

21 concentration of low-income households in central

22 cities.

23 (6) The cost of the largest Federal tax incen24 tives for home ownership, the mortgage interest de25 duction and the real estate tax deduction, is equal
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1 to approximately twice the amount of Federal ex2 penditures for direct Federal housing assistance

3 which benefits low-income households.

4 (7) The mortgage interest deduction and the

5 real estate tax deduction have little value to low-in6 come households because the itemized tax deductions

7 of low-income households generally do not exceed the

8 standard deduction.

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

10 mortgage interest deduction accrue to home buyers

11 with incomes greater than $40,000.

12 (9) Current provisions in the Federal tax code

13 to promote home ownership among low-income

14 households, such as the mortgage revenue bond pro15 gram, the mortgage credit certificate program, and

16 the low-income housing credit, fail to simultaneously

17 attack the twin constraints of lack of wealth and low

18 income that prevent many low-income households

19 from becoming home owners.

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

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

22 approach to increasing home ownership among low23 income households,

24 (2) to enable low-income households to over25 come the wealth and income constraints that fre-
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1 quently prevent such households from becoming

2 home owners, and

3 (3) to reduce the disparities in home ownership

4 between low-income households and higher-income

5 households and between central cities and suburban

6 cities.

7 SEC. 2. HOME OWNERSHIP TAX CREDIT.

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of

10 1986 (relating to business related credits) is amended by

11 adding at the end the following:

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

13 ‘‘(a) ALLOWANCE OF CREDIT.—

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

15 the amount of the home ownership tax credit deter16 mined under this section for any taxable year in the

17 credit period shall be an amount equal to the appli18 cable percentage of the home ownership tax credit

19 amount allocated such taxpayer by a State housing

20 finance agency in the credit allocation year under

21 subsection (b).

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

23 of this section, the Secretary shall prescribe the ap24 plicable percentage for any year in which the tax25 payer is a qualified lender. Such percentage with re-
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1 spect to any month in the credit period with respect

2 to such taxpayer shall be percentages which will

3 yield over such period amounts of credit under para4 graph (1) which have a present value equal to 100

5 percent of the home ownership tax credit amount al6 located such taxpayer under subsection (b).

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

8 value under paragraph (2) shall be determined in

9 the same manner as the low-income housing credit

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

11 ‘‘(b) ALLOCATION OF HOME OWNERSHIP TAX CRED12 IT AMOUNTS.—

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

14 State shall receive a home ownership tax credit dol15 lar amount for each calendar year in an amount

16 equal to the sum of—

17 ‘‘(A) an amount equal to—

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

19 population, multiplied by

20 ‘‘(ii) 10, plus

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

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

23 preceding year.

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

25 section—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 State’ means a State with an approved alloca3 tion plan to allocate home ownership tax credits

4 to qualified lenders through the State housing

5 finance agency.

6 ‘‘(B) APPROVED ALLOCATION PLAN.—For

7 purposes of this paragraph, the term ‘approved

8 allocation plan’ means a written plan, certified

9 by the Secretary, which includes—

10 ‘‘(i) selection criteria for the allocation

11 of credits to qualified lenders—

12 ‘‘(I) based on a process in which

13 lenders submit bids for the value of

14 the credit, and

15 ‘‘(II) which gives priority to

16 qualified lenders with qualified home

17 ownership loans which are prepaid

18 during a calendar year, for credit allo19 cations in the succeeding calendar

20 year,

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

22 not allocate in excess of 10 percent of the

23 home ownership tax credit amount for the

24 calendar year for qualified home ownership
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1 loans which are neighborhood revitalization

2 project loans,

3 ‘‘(iii) a procedure that the agency (or

4 an agent or other private contractor of

5 such agency) will follow in monitoring for

6 noncompliance with the provisions of this

7 section and in notifying the Internal Rev8 enue Service of such noncompliance with

9 respect to which such agency becomes

10 aware, and

11 ‘‘(iv) such other assurances as the

12 Secretary may require.

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

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

15 lender which—

16 ‘‘(A) is an insured depository institution

17 (as defined in section 3 of the Federal Deposit

18 Insurance Act), an insured credit union (as de19 fined in section 101(7) of the Federal Credit

20 Union Act), community development financial

21 institution (as defined in section 103 of the

22 Community Development Banking and Finan23 cial Institutions Act of 1994 (12 U.S.C. 4702)),

24 or nonprofit community development corpora25 tion (as defined in section 613 of the Commu-
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1 nity Economic Development Act of 1981 (42

2 U.S.C. 9802)),

3 ‘‘(B) makes available, through such lender

4 or the lender’s designee, pre-purchase home

5 ownership counseling for mortgagors, and

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

7 the date of the credit allocation, originates not

8 less than 100 qualified home ownership loans in

9 an aggregate amount not less than the amount

10 of the bid of such lender for such credit alloca11 tion.

12 ‘‘(4) CARRYOVER OF CREDIT.—A home owner13 ship tax credit amount received by a State for any

14 calendar year and not allocated in such year shall

15 remain available to be allocated in the succeeding

16 calendar year.

17 ‘‘(5) POPULATION.—For purposes of this sec18 tion, population shall be determined in accordance

19 with section 146(j).

20 ‘‘(6) COST-OF-LIVING ADJUSTMENT.—

21 ‘‘(A) IN GENERAL.—In the case of a cal22 endar year after 2001, the 40 cent amount con23 tained in paragraph (1)(A)(i) shall be increased

24 by an amount equal to—

25 ‘‘(i) such amount, multiplied by
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1 ‘‘(ii) the cost-of-living adjustment de2 termined under section 1(f)(3) for such

3 calendar year by substituting ‘calendar

4 year 2000’ for ‘calendar year 1992’ in sub5 paragraph (B) thereof.

6 ‘‘(B) ROUNDING.—If any amount as ad7 justed under subparagraph (A) is not a multiple

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

9 next lowest multiple of 5 cents.

10 ‘‘(c) QUALIFIED HOME OWNERSHIP LOAN DE11 FINED.—For purposes of this section—

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

13 ownership loan’ means a loan originated and funded

14 by a qualified lender which is secured by a second

15 lien on a residence, but only if—

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

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

18 ‘‘(B) subject to subparagraph (F), the pro19 ceeds from such loan are applied exclusively—

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

21 ‘‘(ii) to substantially improve such

22 residence in connection with a neighbor23 hood revitalization project,

24 ‘‘(C) the principal amount of the loan—
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1 ‘‘(i) is not less than 10 percent of the

2 purchase price of the residence securing

3 the loan,

4 ‘‘(ii) is not more than the lesser of—

5 ‘‘(I) 30 percent of such purchase

6 price, or

7 ‘‘(II) $25,000, and

8 ‘‘(iii) results in a housing-debt to in9 come ratio with respect to such residence

10 of not more than 28 percent,

11 ‘‘(D) in the case of a neighborhood revital12 ization project loan, subparagraph (C) shall be

13 applied—

14 ‘‘(i) by substituting ‘$40,000’ for

15 ‘$25,000’, and

16 ‘‘(ii) by substituting ‘appraised value’

17 for ‘purchase price’ unless the lender

18 chooses not to apply this clause,

19 ‘‘(E) the loan has a term of 30 years, and

20 ‘‘(F) the loan is required to be repaid in

21 any case in which the loan which is secured by

22 the first lien on the residence is refinanced and

23 the amount of indebtedness resulting from the

24 refinancing exceeds the amount of the refi25 nanced indebtedness.
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1 ‘‘(2) ADJUSTMENT OF AMOUNTS BASED ON

2 CHANGES IN HOUSING PRICES.—

3 ‘‘(A) IN GENERAL.—In the case of a cal4 endar year after 2001, the amounts under sub5 paragraphs (C) and (D) of paragraph (1) shall

6 be increased by an amount equal to—

7 ‘‘(i) such amount, multiplied by

8 ‘‘(ii) the housing price adjustment for

9 such calendar year.

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

11 purposes of subparagraph (A), the housing

12 price adjustment for any calendar year is the

13 percentage (if any) by which—

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

15 preceding calendar year, exceeds

16 ‘‘(ii) the housing price index for cal17 endar year 2000.

18 ‘‘(C) HOUSING PRICE INDEX.—For pur19 poses of subparagraph (B), the housing price

20 index means the housing price index published

21 by the Federal Housing Finance Board (as es22 tablished in section 2A of the Federal Home

23 Loan Bank Act (12 U.S.C. 1422a)) for the cal24 endar year.

25 ‘‘(d) MORTGAGOR.—
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1 ‘‘(1) IN GENERAL.—A loan meets the require2 ments of this subsection if it is made to a

3 mortgagor—

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

5 which the mortgagor applies for the loan is 80

6 percent or less of the area median gross income

7 for the area in which the residence which se8 cures the mortgage is located,

9 ‘‘(B) for whom the housing debt-to-income

10 ratio with respect to the residence securing the

11 loan would (but for the qualified home owner12 ship loan) exceed 28 percent,

13 ‘‘(C) for whom the loan would not result in

14 a total debt-to-income ratio which is greater

15 than the guidelines set by the Federal Housing

16 Administration (or any other ratio as deter17 mined by the State housing finance agency or

18 lender if such ratio is less than such guide19 lines), and

20 ‘‘(D) who attends pre-purchase home own21 ership counseling provided by the qualified lend22 er or the lender’s designee.

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

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

25 the family income of a mortgagor and area median
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1 gross income shall be determined in accordance with

2 section 143(f)(2).

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

4 requirements of this subsection if it is secured by a resi5 dence that is—

6 ‘‘(1) a single-family residence which is the prin7 cipal residence (within the meaning of section 121)

8 of the mortgagor, or can reasonably be expected to

9 become the principal residence of the mortgagor

10 within a reasonable time after the financing is pro11 vided,

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

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

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

15 ‘‘(B) $1,000, and

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

17 income greater than 50 percent of the area median

18 gross income, as determined under subsection

19 (d)(1)(A), not financed in connection with a quali20 fied mortgage issued under section 143.

21 For purposes of paragraph (1), a manufactured home

22 shall not be treated as a single-family residence unless

23 such home meets the requirements of section 604(h) of

24 the Housing and Community Development Act of 1974.
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1 ‘‘(f) DEFINITION AND SPECIAL RULES RELATING TO

2 CREDIT PERIOD.—

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

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

5 period of 10 taxable years beginning with the tax6 able year in which a home ownership tax credit

7 amount is allocated to the taxpayer.

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

9 PERIOD.—

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

11 under subsection (a) with respect to any tax12 payer for the 1st taxable year of the credit pe13 riod shall be determined by substituting for the

14 applicable percentage under subsection (a)(2)

15 the fraction—

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

17 sum of the applicable percentages deter18 mined under subsection (a)(2) as of the

19 close of each full month of such year, dur20 ing which the taxpayer was a qualified

21 lender, and

22 ‘‘(ii) the denominator of which is 12.

23 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL24 LOWED IN 11TH YEAR.—Any reduction by rea25 son of subparagraph (A) in the credit allowable
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1 (without regard to subparagraph (A)) for the

2 1st taxable year of the credit period shall be al3 lowable under subsection (a) for the 1st taxable

4 year following the credit period.

5 ‘‘(3) DISPOSITION OF HOME OWNERSHIP

6 LOANS.—If a qualified home ownership loan is dis7 posed of during any year for which a credit is allow8 able under subsection (a), such credit shall be allo9 cated between the parties on the basis of the number

10 of days during such year the mortgage was held by

11 each and the portion of the total credit allocated to

12 the qualified lender which is attributable to such

13 mortgage.

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

15 a qualified home ownership loan is repaid prior to the expi16 ration of the credit period with respect to such loan, the

17 amount of the home ownership tax credit attributable to

18 such loan is no longer available under subsection (a). A

19 rule similar to the rule of subsection (f)(3) shall apply for

20 purposes of the preceding sentence.

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

22 FROM HOME OWNER.—

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

24 any taxpayer described in paragraph (3) disposes of

25 an interest in a residence with respect to which a
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1 home ownership tax credit amount applies, then the

2 taxpayer’s tax imposed by this chapter for such tax3 able year shall be increased by 50 percent of the

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

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

6 apply to any disposition—

7 ‘‘(A) by reason of death,

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

9 than 10 years after the date on which the quali10 fied home ownership loan secured by such resi11 dence was made, or

12 ‘‘(C) in which the purchaser of the resi13 dence assumes the qualified home ownership

14 loan secured by the residence.

15 ‘‘(3) INCOME LIMITATION.—A taxpayer is de16 scribed in this paragraph if, on the date of the dis17 position, the family income of the mortgagor is 115

18 percent or more of the area median gross income as

19 determined under subsection (d)(1)(A) for the year

20 in which the disposition occurs.

21 ‘‘(4) SPECIAL RULES RELATING TO LIMITATION

22 ON RECAPTURE AMOUNT BASED ON GAIN REAL23 IZED.—For purposes of this subsection, rules similar

24 to the rules of section 143(m)(6) shall apply.
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1 ‘‘(5) LENDER TO INFORM MORTGAGOR OF PO2 TENTIAL RECAPTURE.—The qualified lender which

3 makes a qualified home ownership loan to a mort4 gagor shall, at the time of settlement, provide a

5 written statement informing the mortgagor of the

6 potential recapture under this subsection.

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

8 subsection, rules similar to the rules of section

9 143(m)(8) shall apply.

10 ‘‘(i) OTHER DEFINITIONS.—For purposes of this

11 section—

12 ‘‘(1) NEIGHBORHOOD REVITALIZATION

13 PROJECT LOAN.—

14 ‘‘(A) IN GENERAL.—The term ‘neighbor15 hood revitalization project loan’ means a loan

16 secured by a second lien on a residence, the

17 proceeds of which are used to substantially im18 prove such residence in connection with a

19 neighborhood revitalization project.

20 ‘‘(B) NEIGHBORHOOD REVITALIZATION

21 PROJECT.—The term ‘neighborhood revitaliza22 tion project’ means a project of sufficient size

23 and scope to alleviate physical deterioration and

24 stimulate investment in—
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1 ‘‘(i) a geographic location within the

2 jurisdiction of a unit of local government

3 (but not the entire jurisdiction) designated

4 in comprehensive plans, ordinances, or

5 other documents as a neighborhood, vil6 lage, or similar geographic designation, or

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

8 of local government if the population of

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

10 ‘‘(2) STATE.—The term ‘State’ includes a pos11 session of the United States.

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

13 term ‘State housing finance agency’ means the pub14 lic agency, authority, corporation, or other instru15 mentality of a State that has the authority to pro16 vide residential mortgage loan financing throughout

17 the State.

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

19 SECRETARY.—

20 ‘‘(1) CERTIFICATION WITH RESPECT TO STATE

21 ALLOCATION OF HOME OWNERSHIP TAX CREDITS.—

22 The Secretary may, upon a finding of noncompli23 ance, revoke the certification of a qualified State and

24 revoke any qualified home ownership tax credit
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1 amounts allocated to such State or allocated by such

2 State to a qualified lender.

3 ‘‘(2) ANNUAL REPORT FROM HOUSING FINANCE

4 AGENCIES.—Each State housing finance agency

5 which allocates any home ownership tax credit

6 amount to any qualified lender for any calendar year

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

8 such manner as the Secretary shall prescribe) an an9 nual report specifying—

10 ‘‘(A) the home ownership tax credit

11 amount allocated to each qualified lender for

12 such year, and

13 ‘‘(B) with respect to each qualified

14 lender—

15 ‘‘(i) the principal amount of each

16 qualified home ownership loan made by

17 such lender in such year, and

18 ‘‘(ii) the number of qualified home

19 ownership loans made by such lender in

20 such year.

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

22 failure to submit the report required by this para23 graph on the date prescribed therefore.
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1 ‘‘(k) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary or appropriate to

3 carry out the purposes of this section.’’

4 (b) LIMITATION ON CARRYBACK OF UNUSED CRED5 IT.—Subsection (d) of section 39 of the Internal Revenue

6 Code of 1986 (relating to carryback and carryforward of

7 unused credits) is amended by adding at the end the fol8 lowing:

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

10 CREDITS BEFORE EFFECTIVE DATE.—No portion of

11 the unused business credit for any taxable year

12 which is attributable to the home ownership tax

13 credit determined under section 45D may be carried

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

15 enactment of section 45D.’’

16 (c) CONFORMING AMENDMENTS.—

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

18 of 1986 is amended—

19 (A) by striking ‘‘plus’’ at the end of para20 graph (11),

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

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

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

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

25 under section 45D.’’
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1 (2) The table of sections for subpart D of part

2 IV of subchapter A of chapter 1 is amended by add3 ing at the end the following:

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

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

5 this section apply to calendar years after 2000.

Æ