First-time Homebuyer Affordability Act of 1999

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``First-time Homebuyer Affordability 
Act of 1999''.

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 such owners or 
in the home 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 to the extent that the amount paid to acquire the 
        ownership interest referred to paragraph (2)(A) does not exceed 
        $10,000.
            ``(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 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).
                    ``(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 
                        (and, in the case of an arrangement which is 
                        not otherwise at arm's length, the trustee's 
                        fee interest would be reasonable in an arm's 
                        length arrangement),
                            ``(ii) by its terms requires repayment in 
                        full upon the sale or other transfer of the 
                        dwelling unit, 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 24-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 
                121.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to arrangements entered into after the date of the enactment of this 
Act.

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.--Paragraph (3) shall not apply to 
                any qualified home purchase loan made 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 by its terms requires 
                        interest on the loan to be paid not less 
                        frequently than monthly,
                            ``(iv) which by its terms requires 
                        repayment in full not later than the earlier 
                        of--
                                    ``(I) the date which is 15 years 
                                after the date of acquisition of the 
                                dwelling unit, or
                                    ``(II) the date of the sale or 
                                other transfer of the dwelling unit,
                            ``(v) which by its terms treats--
                                    ``(I) any amount required to be 
                                paid under clause (iii) during any 
                                taxable year which is not paid at the 
                                time required to be paid, and
                                    ``(II) any amount remaining unpaid 
                                as of the beginning of the taxable year 
                                beginning after the period described in 
                                clause (iv),
                        as distributed during 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 2 
                        percentage points below, and not more than 2 
                        percentage points above, the rate for 
                        comparable United States Treasury obligations 
                        on such date.
                Nothing in this paragraph shall be construed to require 
                such a loan to be secured by the dwelling unit.
                    ``(C) Limitation on amount of loans.--The amount of 
                borrowings to which paragraph (3) does not apply by 
                reason of this paragraph shall not exceed $10,000.
                    ``(D) Denial of interest deduction.--No deduction 
                shall be allowed under this chapter for interest on any 
                qualified home purchase loan.
                    ``(E) 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 121.
                            ``(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 the date of the enactment of this Act.

Summary: Allows the use of amounts in an individual retirement plan to make loans of up to $10,000 to purchase a home for a first-time homebuyer on behalf of an eligible participant or a family member. Prohibits a related interest deduction. Requires repayment within 15 years.