National Council Of State Housing Agencies Recommends Improvements To Mortgage Credit Certificate Program.

John T. McEvoy of the National Council of State Housing Agencies (NCSHA), Washington, has suggested changes to the temporary regulations on mortgage credit certificate (MCC) reissuance.

NCSHA recommends that issuers be allowed maximum flexibility in administering reissuance programs and that they be allowed to determine how much time may expire after a refinancing for a borrower to remain eligible for a reissued certificate. Also, NCSHA asks that the MCC reissuance regulations spell out how they apply to borrowers who hold certificates before they are married then marry and divorce, and married borrowers who hold certificates when one dies.

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May 1, 1996

CC:DOM:CORP:R [FI-47-92]

Re: Reissuance of Mortgage Credit Certificates

Dear Commissioner Richardson:

[1] The National Council of State Housing Agencies (NCSHA) appreciates this opportunity to comment on the temporary regulations governing the reissuance of Mortgage Credit Certificates (MCCs).

[2] NCSHA is a national, nonprofit organization created in 1970 to assist its members in advancing the interests of lower income people through the financing, development, and preservation of affordable housing. NCSHA's members are Housing Finance Agencies (HFAs) with statewide authority. NCSHA members operate in every state and the District of Columbia, Puerto Rico, and the United States Virgin Islands.

[3] At the center of HFA activities within the states and NCSHA's work in Washington are three federally authorized programs: the Mortgage Revenue Bond (MRB)/Mortgage Credit Certificate (MCC) program; the Low Income Housing Tax Credit (Housing Credit); and the HOME Investment Partnerships (HOME) program. NCSHA is the principal advocate for the MRB/MCC and Housing Credit programs and the principal state advocate for the HOME program.

[4] Using these tools, HFAs have crafted hundreds of housing programs -- from homeownership to rental to all types of special needs housing. Many HFAs also administer other state and federal housing assistance programs.

[5] State HFAs have provided more than 2 million lower income families the help necessary to buy their first home through the MRB program. HFAs have also used more than $613 million in MCC authority to assist over 108,000 lower income families buy their first home.

[6] HFAs could help even more lower income first-time homebuyers with MCCs with some regulatory adjustments to the program. We recommend the following changes to the MCC reissuance regulations, based on two years of HFA experience with them.

AMOUNT OF CERTIFIED INDEBTEDNESS

[7] The regulations require that "the certified mortgage indebtedness specified on the reissued certificates does not exceed the outstanding balance of the certified mortgage indebtedness specified on the existing certificate." This provision prevents borrowers from including the transaction costs associated with refinancing their mortgages. We recommend allowing certified mortgage indebtedness to equal the amount of the outstanding balance plus refinancing transaction costs, if any.

[8] We understand that the IRS may consider allowing a certificate to be reissued for the outstanding balance of the original loan, even if the new mortgage is greater than that amount because it includes transaction costs. This would impose an unreasonable burden on issuers, lenders, and homeowners who would have to calculate and separate the interest paid on the covered portion of the mortgage. It would be far preferable to allow certified indebtedness to cover the entire loan, including refinancing transaction costs.

[9] The regulations also require that "the reissued certificate does not result in an increase in the credit that otherwise would have been allowable to the holder under the existing certificate for any taxable year." This provision is difficult to enforce for issuers who lack data on adjustable rate and other mortgage products.

[10] We recommend allowing issuers to calculate expected credit amounts based on reasonable assumptions about interest payments or a similar method to simplify administration of a reissuance program.

PROGRAM FLEXIBILITY AND REGULATORY CLARIFICATIONS

[11] We recommend that the final regulations provide issuers maximum flexibility in administering a reissuance program. For example, we recommend that the IRS clarify that an issuer may decide whether to establish a reissuance program. We also recommend allowing issuers to determine how much time may expire after a refinancing for a borrower to remain eligible for a reissued certificate.

[12] Finally, we recommend that the final rule clarify how the MCC reissuance regulations apply to borrowers who hold certificates before they are married, who then divorce, or married borrowers who hold certificates, one of whom dies.

ATTRIBUTION OF CERTIFICATE AUTHORITY

[13] The regulations refer to "reissued" certificates. We recommend that IRS state clearly in the final rule that reissuing means reusing original credit authority and does not require a new allocation of credit authority.

[14] Thank you for considering these comments. If NCSHA can be of further assistance in developing the final regulations for MCC reissuance, please contact me.

Sincerely,

John T. McEvoy