[Congressional Record Volume 145, Number 96 (Thursday, July 1, 1999)]
[Senate]
[Pages S8131-S8135]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Schumer, and Mr. Edwards):
  S. 1336. A bill to amend the Internal Revenue Code of 1986 to provide 
a credit to promote home ownership among

[[Page S8132]]

low-income individuals; to the Committee on Finance.


                 home ownership tax credit act of 1999

  Mr. REED. Mr. President, I rise to discuss the state of home 
ownership in the U.S., in addition to legislation I am introducing with 
Senator Schumer  and Senator Edwards to enable more families to achieve 
the American dream of home ownership.
  Today, we have many reasons to celebrate. Indeed, the national home 
ownership rate has soared to an all-time high of almost 67 percent, 
which is up from 64 percent in 1993. Of further significance, this 
increase has, in large measure, been fueled by the growth in home 
ownership among minority households. In fact, minorities were 
responsible for 42 percent of the increase in home ownership between 
1994 and 1997, although they only account for 17 percent of the home 
owner population.
  Despite these positive developments, a number of distressing trends 
should give us cause for concern. For example, minority home ownership 
rates still lag significantly behind those of non-minority households: 
45 percent for minorities versus 72 percent for white households. In 
addition, only 45 percent of low-income households live in owner-
occupied homes, as compared to 86 percent of high-income households.
  These alarming disparities have broad societal implications because 
of the tremendous benefits associated with home ownership. 
Historically, home ownership has been the key to wealth creation in 
this country, and wealth in the form of home equity has enabled 
families to start businesses, finance their children's education, and 
cover unexpected expenses. Consequently, unequal home ownership rates 
lead to wealth disparities. In fact, the median wealth of non-elderly 
low income home owners is 12 times greater than the median wealth of 
non-elderly renters of the same income.
  In addition to wealth-building, home ownership has a positive effect 
on families and on our communities. Indeed, research has found that 
children of homeowners are less likely to become involved in the 
justice system, drop out of school, or have children out of wedlock. 
Moreover, home ownership is correlated with membership in community 
organizations and voting, as well as participation in neighborhood 
enhancing activities.
  In view of the substantial benefits associated with home ownership, 
the Federal Government has actively worked to increase the home 
ownership rate. The primary tools in this effort have been the mortgage 
interest and the real estate tax deductions. Although these tax 
deductions have reduced the costs of home ownership for many, they are 
of little use to low-income households because their itemized tax 
deductions generally do not exceed the standard deduction. As such, 
over 90 percent of the total benefits of the mortgage interest 
deduction accrue to home buyers with incomes greater than $40,000, and 
because of the progressive nature of federal income tax rates, even if 
lower-income households do itemize their deductions, they receive a 
smaller deduction as a percentage of income than more affluent buyers.
  To attack the home ownership disparity between low- and upper-income 
households, the Federal Government has relied on the Mortgage Revenue 
Bond (MRB) program, the Mortgage Credit Certificate (MCC) program, and, 
to a limited extent, the Low-Income Housing Tax Credit (LIHTC) program. 
Under these programs, the Federal Government subsidizes interest rates 
to reduce monthly mortgage costs for low-income home owners.
  While these programs have been successful, their effects have been 
limited. Indeed, the size of these programs, as measured by their 
annual cost--$2.2 billion--pales in comparison to the annual cost of 
the mortgage and real estate tax deductions--$58 billion.
  Also, while attacking the income constraints that prevent many low-
income families from being able to afford monthly mortgage costs, these 
programs do not address wealth constraints such as a lack of savings 
for a down payment and closing costs, that keep many low-income 
families from becoming home owners.
  During these times of economic prosperity, we have a rare opportunity 
to close the home ownership gap that exists between low-income and 
upper-income families. To this end, I am introducing legislation to 
establish a Home Ownership Tax Credit targeted to low-income families. 
This legislation, which has been developed in conjunction with 
Harvard's Joint Center on Housing Studies, the Brookings Institution, 
and Self-Help Community Development Corporation, would attack the 
wealth and income constraints that prevent many low-income families 
from becoming home owners.
  Under this legislation, the Federal Government would issue tax 
credits to participating lenders who would then be obligated to extend 
either low-interest or zero-interest second mortgages to low-income 
families. These second mortgages would effectively be used to cover the 
downpayment and closing costs, although a prospective home buyer would 
still be required to make a small contribution toward the purchase. 
Families could defer repayment on the second mortgage for 25 years, at 
which point a balloon payment would come due, or they could repay the 
second mortgage over 30-years, concurrent with the repayment of their 
first mortgage. In either event, the interest rate on the second 
mortgage would be subsidized, which would lower families' monthly 
mortgage costs. Also, these second mortgages would eliminate the need 
for private mortgage insurance, providing additional savings of roughly 
$60 per month. Under this proposal, families earning as little as 
$14,500 would, for the first time, have the opportunity of realizing 
the American dream of home ownership.
  Mr. President, I believe this legislation represents a common-sense 
approach to addressing the home ownership disparity which exists and I 
would hope my colleagues can be supportive.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1336

       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.

[[Page S8133]]

     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

[[Page S8134]]

     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.
                                  ____


              Summary of the Home Ownership Tax Credit Act

       Bill Summary: Under this legislation, each year the federal 
     government would issue home ownership tax credits to state 
     housing finance agencies (HFAs). State HFAs would then 
     auction these credits off to lenders such as banks, thrifts, 
     community development financial institutions, and community 
     development corporations. Lenders purchasing the tax credits 
     would commit to extending either: 1) zero-interest balloon 
     second mortgages that are due in 25 years or upon the sale of 
     the home, or 2) very low-interest rate second mortgages that 
     amortize in 30 years. These second mortgages would reduce the 
     size of the first mortgage and ultimately reduce monthly 
     mortgage costs. The aggregate principal amount of second 
     mortgages made by each lender would be equal to the price the 
     lender paid for the tax credits. Also, the lender would 
     commit to making at least 100 home ownership tax credit 
     loans.
       The lender would receive the tax credit annually for 10 
     years or until the loan was paid off, whichever occurred 
     earlier. If a home ownership tax credit mortgage was prepaid 
     during the 10-year tax credit period, the lender would have 
     priority in the issuance of tax credits in the subsequent 
     year.
       The lender would get its principal back when the second 
     mortgage amortized, balloon payment came due, or the house 
     was

[[Page S8135]]

     sold. Lenders also would be able to sell the tax credit 
     mortgages on the secondary market with the tax credits being 
     transferred to secondary market investors.
       Only borrowers earning up to 80 percent of the area median 
     income would qualify to take advantage of the home ownership 
     tax credit program. These second mortgages could be between 
     18 and 22 percent of the purchase price of the home, up to 
     $25,000. The second mortgage could be up to $40,000 if used 
     in areas formally targeted for neighborhood revitalization.
       Under this proposal, families earning at little at $14,500 
     would be able to become home owners.
       Example: The following example indicates how this proposal 
     would work:
       A low-income family identifies a $100,000 home that it 
     wants to purchase. The potential home buyers would visit a 
     lender participating in the tax credit program. Let's assume 
     that the lender would agree to extend a $81,000 first 
     mortgage to the home buyer. Under the tax credit program, the 
     home buyer would only be required to make a $1,000 down 
     payment. Assuming that the home buyer met the eligibility 
     requirements of the home ownership tax credit program, the 
     lender would also agree to extend an $18,000 second mortgage 
     (In the alternative, the home buyer could get the first and 
     second mortgages from different lenders). Closing costs of up 
     to $4,000 could be financed into the second mortgage, 
     increasing the second mortgage amount to $22,000.
       If the second mortgage was a zero-interest 25-year balloon, 
     the home buyer would only pay principal, interest, taxes, and 
     insurance on the $81,000 first mortgage for 25 years, or 
     until sale of the home (approximately $540/month at 7 percent 
     interest, plus taxes and insurance). Assuming that the home 
     buyer stayed in the home, at the end of 25 years, he/she 
     could refinance using his/her accumulated equity to repay 
     most or all of the $22,000 they owed on the balloon mortgage.
       In sum, this proposal will allow a low-income family to 
     purchase a $100,000 home with a $1000 down payment and a 
     monthly mortgage payment of $540 (plus taxes and insurance) 
     throughout most of the life of the first mortgage.
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