Arkansas Administrative Code › Agency 109 - Arkansas Development Finance Authority › Rule 109.00.11-001 - Mortgage Credit Certificate (MCC) Program

Current through Register Vol. 49, No. 6, June, 2024
Chapter 1
- Introduction
A.
About this Program Guide
The Arkansas Development Finance Authority ("ADFA" or the
			 "Authority") has developed this Mortgage Credit Certificate Program Guide ( the
			 "Program Guide") for the use and benefit of any and all parties having an
			 interest in an MCC program. However, we have attempted to target the
			 information and materials in this Program Guide to the Participating Lenders
			 (as defined in Chapter 2) in order to aid and assist them in complying with the
			 terms and conditions of our Mortgage Credit Certificate program. Participating
			 Lenders should familiarize themselves with all of the conditions and
			 obligations set out in the Program Guide. The requirements discussed herein are
			 mandatory and the failure of the Participating Lender to adhere to the MCC
			 Program requirements may lead to the termination of such Participating Lenders'
			 usage of the program.
B.
What is a Mortgage Credit Certificate
The MCC Program was authorized by Congress in 1984 and is
			 codified as Section 25 of the Internal Revenue Code of 1986 (the "Tax Code").
			 Congress intended the MCC Program as a means of providing housing assistance to
			 low and moderate income First-Time-Homebuyers. ADFA has elected to allocate a
			 part of its Mortgage Revenue Bond authority for single-family housing toward
			 the MCC Program. This Program is being made available through participating
			 lenders on a first-come, first-serve basis, subject to certain targeting
			 requirements imposed by the Tax Code and more fully described herein.
A Mortgage Credit Certificate is a direct dollar for dollar
			 federal income tax credit to the homebuyer. The amount of the credit to the
			 borrower is established by the MCC Tax Rate that is set by the Authority. The
			 Code allows ADFA to set the MCC Tax Rate from ten percent (10%) to fifty
			 percent (50%), and multiple MCC Tax Rates may be established. For the 2010 MCC
			 Program ADFA has set the MCC Tax Rate at twenty-five percent (25%). Subsequent
			 Programs may have different rates. The MCC reduces the federal income tax
			 liability of eligible homebuyers purchasing a qualified residence, thereby
			 making more funds available for the house payment or other household
			 liabilities. The monthly savings the homebuyer receives from using the MCC can
			 be used to gross up the monthly income or reduce the housing expense ratio for
			 qualifying purposes. Examples of MCC calculations can be found later in this
			 chapter.
The benefit to the borrower cannot exceed the amount of Federal
			 taxes owed after all other credits and deductions have been taken into account.
			 The amount of the tax credit benefit may not exceed $2,000 in any given tax
			 year. The homeowner may reduce the amount of monthly federal income tax
			 withheld by filing a revised IRS Form W-4 Employees Withholding Allowance
			 Certificate, in order to have more disposable income for the month. Also, the
			 homeowner has the ability to carry forward for the next three years any unused
			 portion of the credit but he must use the current year's MCC first before
			 carrying forward any additional amounts. A purchaser of a new or existing
			 single-family residence may apply for an MCC through a Participating Lender at
			 the time of obtaining financing. An MCC cannot be issued to a homebuyer who is
			 refinancing an existing mortgage or land contract. A borrower may not combine
			 the benefits of an MCC if his/ her purchase is financed using the proceeds of a
			 tax exempt mortgage revenue bond loan.
The Authority is simply a conduit for the granting of the MCC.
			 ADFA will not make or hold MCC-assisted mortgage loans and will not underwrite
			 the loans. The Lenders participating in the Program will perform all
			 underwriting and execution of required ADFA and Federal certifications or
			 affidavits under ADFA agreement. For purposes of the MCC Program, Participating
			 Lenders ( based on the executed MCC Lender Participation Agreement) will be
			 acting as independent contractors. ADFA will receive executed certifications
			 and affidavits from the Lender in order to determine the Borrowers
			 qualification and eligibility.
The allowable fees for this MCC Program can be found in Chapter 4
			 paragraph J of this Program Guide. .
After the Lender has explained the Program and its guidelines,
			 ADFA encourages borrowers who believe they qualify to apply for an MCC in
			 conjunction with their first mortgage financing.
C.
Duration Of The Program
The 2010 Arkansas Mortgage Credit Certificate Program will
			 continue until:
a. The Program
		  allocated funding has been exhausted or;
b. The end of calendar year 2012. The IRS
		  allows that certificates may be issued for indebtedness that is incurred up to
		  the close of the 2nd calendar year following the
		  calendar year for which the issuing authority made the election to issue MCC's
		  in lieu of qualified mortgage bonds. ADFA made that election on January 21,
		  2010.
c. ADFA has a requirement to
		  hold at least 20% of the amount of certified indebtedness for lending in
		  Targeted Counties for one-year from the time the MCC's are first made
		  available. To insure compliance with this requirement, it is possible that the
		  Arkansas 2010 Mortgage Credit Certificate Program will close at some point to
		  all but "Targeted area" applicants.
D.
MCC Program
		  Size.
The volume of Mortgage Credit Certificates available in the State
			 of Arkansas is determined by a procedure set forth in the Internal Revenue Code
			 of 1986. Under the Arkansas 2010 MCC Program, the Authority, as an issuer of
			 mortgage revenue bonds, can trade $1.00 of bond authority for $0.25 of MCC
			 authority. When ADFA initially elected to trade in $10,000,000 of bond
			 authority, it received $2,500,000 of MCC authority. Each MCC issued uses up an
			 amount of MCC authority equal to the amount of the mortgage loan multiplied by
			 the 25 percent MCC Credit Rate established by the Authority. Using an average
			 $125,000 mortgage amount uses up $31,250 of MCC authority based on a 25 percent
			 MCC Tax Credit Rate. Based on this average MCC utilization rate, $2,500,000 of
			 MCC authority will allow $10,000,000 in first mortgage loans to be
			 originated.
This initial MCC Program for the State of Arkansas is very small
			 in scope. If it is successful subsequent programs may be established to help a
			 much larger number of Arkansas homebuyers.
E.
Eligible Types of Loans
Since the majority of the Borrower's that use the MCC Program are
			 required to be First-Time-Homebuyers, the Authority has decided that the first
			 mortgage loan that accompanies an MCC under this Program must be a
fixed rate, fully amortising
loan.
			 Because of the higher level of risk, adjustable rate, interest only and other
			 types of "exotic" mortgages are not allowed.
F.
Sample MCC Calculation
Amount of First Mortgage
$
150,000.00
Interest Rate
x_
5.00%
First Year Interest Paid
= $
7,500.00
MCC Tax Rate
x ___
25%__
Reduced Federal Tax Liability
= $ 1,875.00
Maximum Amount Per Year
$ 2,000.00
Calendar Months/ Year
Divided By ____
12___
Monthly Savings
= $ 166.66
* With a 25% MCC Tax Rate the maximum amount of tax credit
			 benefit is $2,000 per year.
* Unused tax credits can be carried forward for three
			 years.
* To receive immediate benefit from the MCC Program, Eligible
			 Borrowers should file a revised W-4 Federal Tax Withholding Form with their
			 employer. This revision will reduce the Borrower's yearly Federal tax
			 withholdings and Increase his/her monthly take home pay.
G.
Lender
		  Participation.
The Arkansas 2010 Mortgage Credit
		  Certificate Program is open to any Lender authorized to conduct business in the
		  State of Arkansas who meet ADFA's MCC Program requirements. A listing of MCC
		  approved lenders will be maintained by ADFA. This is a separate listing from
		  the Participating Lenders in the tax exempt mortgage revenue bond program. This
		  is a separate listing from the Participating Lenders in the tax exempt mortgage
		  revenue bond program ("HomeToOwn"Program).
Lenders interested in participating in the MCC Program should
			 contact ADFA, Attn: Single Family Program Manager at 501-682-5974. Each Lender
			 will be required to execute a
"Lender Participation Agreement"
as
			 found in Appendix 6 of this Program Guide. When requests are received for
			 lender participation in the 2010 Mortgage Credit Certificate Program they will
			 be reviewed and if accepted for the program ADFA will send a
"Notice of
			 Acceptance & Assignment of MCC Lender
			 I dentification Number"
verifying acceptance. A sample of that notice can be found in Appendix
			 10 of this Program Guide.
H.
Program
		  Changes.
Certain changes may be made to the MCC Program at
		  the sole discretion of the President of the Authority. Those changes include
		  changes to program fees and minor changes to the program exhibits, forms and
		  appendices. Changes to the non-issued bond amount and the MCC Tax Credit Rate
		  must have management and Board approval.
I.
How To Access the
		  Mortgage Interest Credit.
The benefit of the Mortgage
		  Credit Certificate can be accessed by using IRS Form 8396 when the taxpayer
		  files the Form 1040 each year. A sample of IRS 8396 and instructions for
		  completion of the form may be found on the IRS web site -
www.irs.gov
.