[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1336 Introduced in Senate (IS)]

  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.

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

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.

    (a) Short Title.--This Act may be cited as the ``Home Ownership Tax 
Credit Act of 1999''.
    (b) Findings.--Congress finds the following:
            (1) Home ownership is of primary importance in building 
        wealth in low-income families.
            (2) 67 percent of the wealth that is owned by non-elderly 
        low-income households consists of the equity in their 
        residences and the median wealth of such non-elderly low-income 
        households is 12 times greater than the median wealth for non-
        elderly renters with the same level of income.
            (3) Only 45 percent of low-income households live in owner-
        occupied homes, as compared to 66 percent of all households, 
        and 86 percent of high-income households.
            (4) According to the Bureau of the Census, in 1993, 88 
        percent of all renters and 93 percent of renters earning less 
        than $20,000 could not afford a house selling for half of the 
        regional median house price.
            (5) There is a 23 percentage point difference in home 
        ownership rates between central cities and suburban cities 
        which is largely the result of the concentration of low-income 
        households in central cities.
            (6) The cost of the largest Federal tax incentives for home 
        ownership, the mortgage interest deduction and the real estate 
        tax deduction, is equal to approximately twice the amount of 
        Federal expenditures for direct Federal housing assistance 
        which benefits low-income households.
            (7) The mortgage interest deduction and the real estate tax 
        deduction have little value to low-income households because 
        the itemized tax deductions of low-income households generally 
        do not exceed the standard deduction.
            (8) Over 90 percent of the total benefits of the mortgage 
        interest deduction accrue to home buyers with incomes greater 
        than $40,000.
            (9) Current provisions in the Federal tax code to promote 
        home ownership among low-income households, such as the 
        mortgage revenue bond program, the mortgage credit certificate 
        program, and the low-income housing credit, fail to 
        simultaneously attack the twin constraints of lack of wealth 
        and low income that prevent many low-income households from 
        becoming homeowners.
    (c) Purposes.--The purposes of this Act are--
            (1) to establish a decentralized, market-driven approach to 
        increasing home ownership among low-income households,
            (2) to enable low-income households to overcome the wealth 
        and income constraints that frequently prevent such households 
        from becoming homeowners, and
            (3) to reduce the disparities in home ownership between 
        low-income households and higher-income households and between 
        central cities and suburban cities.

SEC. 2. HOME OWNERSHIP TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following:

``SEC. 45D. HOME OWNERSHIP TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, the amount 
        of the home ownership tax credit determined under this section 
        for any taxable year in the credit period shall be an amount 
        equal to the applicable percentage of the home ownership tax 
        credit amount allocated such taxpayer by a State housing 
        finance agency in the credit allocation year under subsection 
        (b).
            ``(2) Applicable percentage.--For purposes of this section, 
        the Secretary shall prescribe the applicable percentage for any 
        year in which the taxpayer is a qualified lender. Such 
        percentage with respect to any month in the credit period with 
        respect to such taxpayer shall be percentages which will yield 
over such period amounts of credit under paragraph (1) which have a 
present value equal to 100 percent of the home ownership tax credit 
amount allocated such taxpayer under subsection (b).
            ``(3) Method of discounting.--The present value under 
        paragraph (2) shall be determined in the same manner as the 
        low-income housing credit under section 42(b)(2)(C).
    ``(b) Allocation of Home Ownership Tax Credit Amounts.--
            ``(1) Amount of credit.--Each qualified State shall receive 
        a home ownership tax credit dollar amount for each calendar 
        year in an amount equal to the sum of--
                    ``(A) an amount equal to--
                            ``(i) 40 cents multiplied by the State 
                        population, multiplied by
                            ``(ii) 10, plus
                    ``(B) the unused home ownership tax credit dollar 
                amount (if any) of such State for the preceding year.
            ``(2) Qualified state.--For purposes of this section--
                    ``(A) In general.--The term `qualified State' means 
                a State with an approved allocation plan to allocate 
                home ownership tax credits to qualified lenders through 
                the State housing finance agency.
                    ``(B) Approved allocation plan.--For purposes of 
                this paragraph, the term `approved allocation plan' 
                means a written plan, certified by the Secretary, which 
                includes--
                            ``(i) selection criteria for the allocation 
                        of credits to qualified lenders--
                                    ``(I) based on a process in which 
                                lenders submit bids for the value of 
                                the credit, and
                                    ``(II) which gives priority to 
                                qualified lenders with qualified home 
                                ownership tax credit loans which are 
                                prepaid during a calendar year, for 
                                credit allocations in the succeeding 
                                calendar year,
                            ``(ii) an assurance that the State will not 
                        allocate in excess of 10 percent of the home 
                        ownership tax credit amount for the calendar 
                        year for qualified home ownership tax credit 
                        loans which are neighborhood revitalization 
                        project loans,
                            ``(iii) a procedure that the agency (or an 
                        agent or other private contractor of such 
                        agency) will follow in monitoring for 
                        noncompliance with the provisions of this 
                        section and in notifying the Internal Revenue 
                        Service of such noncompliance with respect to 
                        which such agency becomes aware, and
                            ``(iv) such other assurances as the 
                        Secretary may require.
            ``(3) Qualified lender.--For purposes of this section, the 
        term `qualified lender' means a lender which--
                    ``(A) is an insured depository institution (as 
                defined in section 3 of the Federal Deposit Insurance 
                Act), insured credit union (as defined in section 101 
                of the Federal Credit Union Act), community development 
                financial institution (as defined in section 103 of the 
                Community Development Banking and Financial 
                Institutions Act of 1994 (12 U.S.C. 4702)), or 
                nonprofit community development corporation (as defined 
                in section 613 of the Community Economic Development 
                Act of 1981 (42 U.S.C. 9802)),
                    ``(B) makes available, through such lender or the 
                lender's designee, pre-purchase homeownership 
                counseling for mortgagors, and
                    ``(C) during the 1-year period beginning on the 
                date of the credit allocation, originates not less than 
                100 qualified home ownership tax credit loans in an 
                aggregate amount not less than the amount of the bid of 
                such lender for such credit allocation.
            ``(4) Carryover of credit.--A home ownership tax credit 
        amount received by a State for any calendar year and not 
        allocated in such year shall remain available to be allocated 
        in the succeeding calendar year.
            ``(5) Population.--For purposes of this section, population 
        shall be determined in accordance with section 146(j).
            ``(6) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of a calendar year 
                after 2000, the 40 cent amount contained in paragraph 
                (1)(A)(i) shall be increased by an amount equal to--
                            ``(i) such amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        1999' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of 5 cents, such 
                amount shall be rounded to the next lowest multiple of 
                5 cents.
    ``(c) Qualified Home Ownership Tax Credit Loan Defined.--For 
purposes of this section--
            ``(1) In general.--The term `qualified home ownership tax 
        credit loan' means a loan originated and funded by a qualified 
        lender which is secured by a second lien on a residence, but 
        only if--
                    ``(A) the requirements of subsections (d), (e), and 
                (f) are met,
                    ``(B) subject to subparagraphs (F), (H), and (I), 
                the proceeds from such loan are applied exclusively--
                            ``(i) to acquire such residence, or
                            ``(ii) to substantially improve such 
                        residence in connection with a neighborhood 
                        revitalization project,
                    ``(C) the principal amount of the loan is equal to 
                an amount which is--
                            ``(i) not less than 18 percent of the 
                        purchase price of the residence securing the 
                        loan, and
                            ``(ii) not more than the lesser of--
                                    ``(I) 22 percent of such purchase 
                                price, or
                                    ``(II) $25,000,
                    ``(D) in the case of a neighborhood revitalization 
                project loan, subparagraph (C) is applied by 
                substituting--
                            ``(i) `purchase price or appraised value' 
                        for `purchase price', and
                            ``(ii) `$40,000' for `$25,000',
                    ``(E) the loan is--
                            ``(i) amortized over a period of not more 
                        than 30 years (or any lesser period of time as 
                        determined by the lender or the State housing 
                        finance agency (as applicable)), or
                            ``(ii) described in paragraph (2),
                    ``(F) the proceeds of such loan are not used for 
                settlement or other closing costs of the transaction in 
                an amount in excess of 4 percent of the purchase price 
                of the residence securing the loan,
                    ``(G) the rate of interest of the loan does not 
                exceed the greater of--
                            ``(i) the excess of--
                                    ``(I) the prime lending rate in 
                                effect as of the date on which the loan 
                                is originated, over
                                    ``(II) 5.5 percent, or
                            ``(ii) 3 percent,
                    ``(H) the origination fee paid with respect to the 
                loan does not cause the aggregate amount of origination 
                fees paid with respect to any loans secured by the 
                residence--
                            ``(i) in the case of a neighborhood 
                        revitalization project loan, to exceed 1 
                        percent of the appraised value of the residence 
                        which secures the loan, and
                            ``(ii) in the case of any other loan, to 
                        exceed 2 percent of the appraised value of such 
                        residence, and
                    ``(I) the servicing fees of such loan--
                            ``(i) are allocated from interest payments 
                        made with respect to the loan, and
                            ``(ii) may not--
                                    ``(I) in the case of a neighborhood 
                                revitalization project loan, exceed a 
                                total of 38 basis points, and
                                    ``(II) in the case of any other 
                                loan, when added to such fees of any 
                                other loan secured by the residence, 
                                exceed a total of 63 basis points.
            ``(2) Balloon payment loan.--
                    ``(A) In general.--A loan is described in this 
                paragraph if such loan--
                            ``(i) meets the requirements of 
                        subparagraphs (B) and (C),
                            ``(ii) is for a period of 25 years and, 
                        except as provided in clause (iv), no payment 
                        is due on such loan until the sooner of--
                                    ``(I) the end of such period, or
                                    ``(II) the date on which the 
                                residence which secures the loan is 
                                disposed of,
                            ``(iii) does not prohibit early repayment 
                        of such loan, and
                            ``(iv) requires payment on such loan if the 
                        mortgagor receives any portion of the equity of 
                        such residence as part of a refinancing of any 
                        loan secured by such residence.
                    ``(B) Interest.--Notwithstanding paragraph (1)(G), 
                the rate of interest of the loan is zero percent.
                    ``(C) Servicing fees.--Notwithstanding paragraph 
                (1)(I), there shall be no servicing fees in connection 
                with the loan.
            ``(3) Index of amount.--
                    ``(A) In general.--In the case of a calendar year 
                after 2000, the amounts under subparagraphs (C) and (D) 
                of paragraph (1) shall be increased by an amount equal 
                to--
                            ``(i) such amount, multiplied by
                            ``(ii) the housing price adjustment for 
                        such calendar year.
                    ``(B) Housing price adjustment.--For purposes of 
                subparagraph (A), the housing price adjustment for any 
                calendar year is the percentage (if any) by which--
                            ``(i) the housing price index for the 
                        preceding calendar year, exceeds
                            ``(ii) the housing price index for calendar 
                        year 2000.
                    ``(C) Housing price index.--For purposes of 
                subparagraph (B), the housing price index means the 
                housing price index published by the Federal Housing 
                Finance Board (as established in section 2A of the 
                Federal Home Loan Bank Act (12 U.S.C. 1422a)) for the 
                calendar year.
    ``(d) Mortgagor.--
            ``(1) In general.--A loan meets the requirements of this 
        subsection if it is made to a mortgagor--
                    ``(A) whose family income for the year in which the 
                mortgagor applies for the loan is 80 percent or less of 
                the area median gross income for the area in which the 
                residence which secures the mortgage is located,
                    ``(B) for whom the loan would not result in a 
                housing debt-to-income ratio, with respect to the 
                residence securing the loan, or total debt-to-income 
                ratio which is greater than the guidelines set by the 
                Federal Housing Administration (or any other ratio as 
                determined by the State housing finance agency or 
                lender if such ratio is less than such guidelines), and
                    ``(C) who attends pre-purchase homeownership 
                counseling provided by the qualified lender or the 
                lender's designee.
            ``(2) Determination of family income.--For purposes of this 
        subsection and subsection (h), the family income of a mortgagor 
        and area median gross income shall be determined in accordance 
        with section 143(f)(2).
    ``(e) Residence Requirements.--A loan meets the requirements of 
this subsection if it is secured by a residence that is--
            ``(1) a single-family residence (including a manufactured 
        home (within the meaning of section 25(e)(10))) which is the 
        principal residence (within the meaning of section 121) of the 
        mortgagor, or can reasonably be expected to become the 
        principal residence of the mortgagor within a reasonable time 
        after the financing is provided,
            ``(2) purchased by the mortgagor with a down payment in an 
        amount not less than the lesser of--
                    ``(A) 2 percent of the purchase price, or
                    ``(B) $1,000, and
            ``(3) in the case of a mortgagor with a family income 
        greater than 50 percent of the area median gross income, as 
        determined under subsection (d)(1)(A), not financed in 
        connection with a qualified mortgage issued under section 143.
    ``(f) Definition and Special Rules Relating to Credit Period.--
            ``(1) Credit period defined.--For purposes of this section, 
        the term `credit period' means the period of 10 taxable years 
        beginning with the taxable year in which a home ownership tax 
        credit amount is allocated to the taxpayer.
            ``(2) Special rule for 1st year of credit period.--
                    ``(A) In general.--The credit allowable under 
                subsection (a) with respect to any taxpayer for the 1st 
                taxable year of the credit period shall be determined 
                by substituting for the applicable percentage under 
                subsection (a)(2) the fraction--
                            ``(i) the numerator of which is the sum of 
                        the applicable percentages determined under 
                        subsection (a)(2) as of the close of each full 
                        month of such year, during which the taxpayer 
                        was a qualified lender, and
                            ``(ii) the denominator of which is 12.
                    ``(B) Disallowed 1st year credit allowed in 11th 
                year.--Any reduction by reason of subparagraph (A) in 
                the credit allowable (without regard to subparagraph 
                (A)) for the 1st taxable year of the credit period 
                shall be allowable under subsection (a) for the 1st 
                taxable year following the credit period.
            ``(3) Disposition of home ownership tax credit loans.--If a 
        qualified home ownership tax credit loan is disposed of during 
        any year for which a credit is allowable under subsection (a), 
        such credit shall be allocated between the parties on the basis 
        of the number of days during such year the mortgage was held by 
        each and the portion of the total credit allocated to the 
        qualified lender which is attributable to such mortgage.
    ``(g) Loss of Credit.--If, during the taxable year, a qualified 
home ownership tax credit loan is repaid prior to the expiration of the 
credit period with respect to such loan, the amount of the home 
ownership tax credit attributable to such loan is no longer available 
under subsection (a). For purposes of the preceding sentence, the tax 
credit is allowable for the portion of the year in which such repayment 
occurs for which the loan is outstanding, determined in the same manner 
as provided in subsection (f)(2)(A).
    ``(h) Recapture of Portion of Federal Subsidy From Home-Owner.--
            ``(1) In general.--If, during the taxable year, any 
        taxpayer described in paragraph (3) disposes of an interest in 
        a residence with respect to which a home ownership tax credit 
        amount applies, then the taxpayer's tax imposed by this chapter 
        for such taxable year shall be increased by 50 percent of the 
        gain (if any) on the disposition of such interest.
            ``(2) Exceptions.--Paragraph (1) shall not apply to any 
        disposition--
                    ``(A) by reason of death,
                    ``(B) which is made on a date that is more than 10 
                years after the date on which the qualified home 
                ownership tax credit loan secured by such residence was 
                made, or
                    ``(C) in which the purchaser of the residence 
                assumes the qualified home ownership tax credit loan 
                secured by the residence.
            ``(3) Income limitation.--A taxpayer is described in this 
        paragraph if, on the date of the disposition, the family income 
        of the mortgagor is 115 percent or more of the area median 
        gross income as determined under subsection (d)(1)(A) for the 
        year in which the disposition occurs.
            ``(4) Special rules relating to limitation on recapture 
        amount based on gain realized.--For purposes of this 
        subsection, rules similar to the rules of section 143(m)(6) 
        shall apply.
            ``(5) Lender to inform mortgagor of potential recapture.--
        The qualified lender which makes a qualified home ownership tax 
        credit loan to a mortgagor shall, at the time of settlement, 
        provide a written statement informing the mortgagor of the 
        potential recapture under this subsection.
            ``(6) Special rules.--For purposes of this subsection, 
        rules similar to the rules of section 143(m)(8) shall apply.
    ``(i) Other Definitions.--
            ``(1) Neighborhood revitalization project loan.--
                    ``(A) In general.--The term `neighborhood 
                revitalization project loan' means a loan secured by a 
                second lien on a residence, the proceeds of which are 
                used to substantially improve such residence in 
                connection with a neighborhood revitalization project.
                    ``(B) Neighborhood revitalization project.--The 
                term `neighborhood revitalization project' means a 
                project of sufficient size and scope to alleviate 
                physical deterioration and stimulate investment in--
                            ``(i) a geographic location within the 
                        jurisdiction of a unit of local government (but 
                        not the entire jurisdiction) designated in 
                        comprehensive plans, ordinances, or other 
                        documents as a neighborhood, village, or 
                        similar geographic designation, or
                            ``(ii) the entire jurisdiction of a unit of 
                        local government if the population of such 
                        jurisdiction is not in excess of 25,000.
            ``(2) State.--The term `State' includes a possession of the 
        United States.
            ``(3) State housing finance agency.--The term `State 
        housing finance agency' means the public agency, authority, 
        corporation, or other instrumentality of a State that has the 
        authority to provide residential mortgage loan financing 
        throughout the State.
    ``(j) Certification and Other Reports to the Secretary.--
            ``(1) Certification with respect to state allocation of 
        home ownership tax credits.--The Secretary may, upon a finding 
        of noncompliance, revoke the certification of a qualified State 
        and revoke any qualified home ownership tax credit amounts 
        allocated to such State or allocated by such State to a 
        qualified lender.
            ``(2) Annual report from housing finance agencies.--Each 
        State housing finance agency which allocates any home ownership 
        tax credit amount to any qualified lender for any calendar year 
        shall submit to the Secretary (at such time and in such manner 
        as the Secretary shall prescribe) an annual report specifying--
                    ``(A) the home ownership tax credit amount 
                allocated to each qualified lender for such year, and
                    ``(B) with respect to each qualified lender--
                            ``(i) the principal amount of the aggregate 
                        qualified home ownership tax credit loans made 
                        by such lender in such year and the outstanding 
                        amount of such loans in such year, and
                            ``(ii) the number of qualified home 
                        ownership tax credit loans made by such lender 
                        in such year.
        The penalty under section 6652(j) shall apply to any failure to 
        submit the report required by this paragraph on the date 
        prescribed therefore.
    ``(k) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''
    (b) Limitation on Carryback of Unused Credit.--Subsection (d) of 
section 39 of the Internal Revenue Code of 1986 (relating to carryback 
and carryforward of unused credits) is amended by adding at the end the 
following:
            ``(9) No carryback of home ownership tax credits before 
        effective date.--No portion of the unused business credit for 
        any taxable year which is attributable to the home ownership 
        tax credit determined under section 45D may be carried back to 
        a taxable year ending before the date of the enactment of 
        section 45D.''
    (c) Conforming Amendments.--
            (1) Section 38(b) of the Internal Revenue Code of 1986 is 
        amended--
                    (A) by striking ``plus'' at the end of paragraph 
                (11),
                    (B) by striking the period at the end of paragraph 
                (12), and inserting ``, plus'', and
                    (C) by adding at the end the following:
            ``(13) the home ownership tax credit determined under 
        section 45D.''
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following:

                              ``Sec. 45D. Home ownership tax credit.''
    (d) Effective Date.--The amendments made by this section apply to 
calendar years after 1999.
                                 <all>