Mortgage Credit Certificate (MCC) Procedural Guide

Transcription

1 The Homeownership Department Mortgage Credit Certificate (MCC) Procedural Guide Revised February, 2010 The Illinois Housing Development Authority 401 N. Michigan Avenue Suite 700 Chicago, IL

2 December, 2010 Welcome to the Illinois Housing Development Authority s Mortgage Credit Certificate (MCC) Procedural Guide. This Guide is designed to assist you in offering MCCS to qualifying borrowers. Should you have questions or need clarification on anything contained in this Guide, please feel free to contact an IHDA representative: Manager: Keith Pryor kpryor@ihda.org Homeownership Loan Officers: Linda Benson lbenson@ihda.org Allison Crane acrane@ihda.org Dorothy Peppers dpeppers@ihda.org Patricia Temske ptemske@ihda.org The procedures contained herein are subject to change, so please consult the IHDA website ( on a regular basis or call an IHDA Homeownership Loan Officer. For a detailed description of Tax Code Compliance Underwriting, please refer to the 2010 Home Start Procedural Guide which can be found on IHDA s website. Thank you for participating in IHDA s Mortgage Credit Certificate (MCC) Program! We are very excited to offer this benefit to your clients. Tara Pavlik Director of Homeownership Operations and Originations Tpavlik@ihda.org Page 2

3 ILLINOIS HOUSING DEVELOPMENT AUTHORITY: The Illinois Housing Development Authority (IHDA) is a self-supporting state agency that finances the creation and the preservation of affordable housing throughout Illinois to increase the supply of decent and safe places for people of low or moderate means to live. IHDA accomplishes its mission through a number of federal and state funding sources. IHDA is also a bonding authority and independently sells bonds, based on its own good credit, to finance affordable housing in Illinois. Since its creation in 1967, IHDA has allocated more than $9.67 billion and financed more than 204,000 affordable units across the state. THE ILLINOIS MORTGAGE CREDIT CERTIFICATE (MCC) PROGRAM: The Illinois Mortgage Credit Certificate (MCC) Program is another method of providing financial assistance to first-time homebuyers. A Mortgage Credit Certificate creates an income tax deduction that reduces a household's federal income tax liability and allows the household to have more available income to make mortgage payments. The MCC Program is available in limited communities across the State. Please visit IHDA s website at for a list of communities with MCC programs. The Statewide Veterans MCC Program is available throughout the State and is open to Veterans and active service personnel. Veterans and their spouses do not have to be first-time homebuyers to be eligible. National Guard and Enlisted Reserves are eligible if they have been federally activated to duty for reasons other than natural disasters or domestic civil disturbances. HOW DOES THE MORTGAGE CREDIT WORK? Homebuyers who qualify for the program receive a Mortgage Credit Certificate from IHDA, which can be used to reduce their household's tax burden every year for the life of their mortgage loan. With an MCC, a percentage of what the homeowner pays in mortgage interest (usually 20 percent) becomes a tax credit that can be deducted dollar-for-dollar from his/her income tax liability. The remaining 80 percent of the mortgage interest continues to qualify as an itemized tax deduction, as long as the homeowner has sufficient tax liability. The MCC Program cannot be used in conjunction with IHDA s Smart Move Program or any other Mortgage Revenue Bond-financed loan product. HOW BIG WILL THE TAX CREDIT BE? The percentage of the annual tax credit is usually 20 percent. Page 3

4 HOW IS THE MORTGAGE CREDIT CALCULATED? Example: A homeowner pays $5,360* in interest on his/her home during the first year. The homeowner can claim 20 percent of the interest, or $1,072, as a direct tax credit; meaning he/she will free up $1,072 to help make his/her loan payments. The tax credit, however, cannot be larger than the homeowner s annual federal income tax liability after deductions, exemptions, and other credits; meaning that the homeowner cannot receive a $1,072 tax credit if he/she does not owe at least $1,072 in taxes. *$5,360 is approximately what a homeowner would owe in interest during the first 12 months on a $90,000 fixed-rate mortgage at 6 percent interest. HOW LONG CAN THE HOMEOWNER CLAIM THE MCC? The MCC is good up to thirty (30) years so long as the home remains the buyer s principal residence. WHAT LOAN TYPES CAN BE USED WITH AN MCC? To be eligible for an MCC, the loan must be a new mortgage loan. A borrower cannot obtain an MCC if they are refinancing an existing mortgage loan. An MCC can be used in conjunction with any loan product such as: conventional fixed rate or adjustable rate loans; FHA; VA; USDA-RD; or, a privately insured mortgage loan. Any loan product is acceptable provided that the mortgage loan did not come from the sale of tax-exempt bonds. It is for this reason that MCCs cannot be used with Home Start products. WHAT FEES ARE ASSOCIATED WITH AN MCC? The minimum fee charged to the borrower is $350. The maximum fee is $500. At the time of application, the Lender can collect an administrative fee of $150 from the borrower. Many lenders waive this fee. At the time of closing, the Lender must collect a fee of $350 from the borrower, to be remitted to IHDA*. The process of remitting the $350 fee to IHDA is as follows: 1. In the closing instructions to the agent, inform him/her to have a check written in the amount of $350 and made payable to the Illinois Housing Development Authority. The IHDA loan number should be written in the memo section of the check. 2. Prepare an IHDA MCC Fee Transmittal Form (found at 3. Fax a copy of the check and MCC Transmittal Form to Forward the check and MCC Fee Transmittal Form to: The Illinois Housing Development Authority P.O. Box Chicago, IL *Please note: If the MCC is a statewide MCC the fee is.0075 of the loan amount. Page 4

5 HOW DOES A BORROWER QUALIFY? Prior to completing an MCC application, the borrower should be pre-screened. Eligibility for the program includes: a. borrower must be a first-time homebuyer or exempt (see exemption below) b. co-borrower (i.e. spouse) must be a first-time homebuyer or exempt c. household income and property purchase price must be within program limits d. home must be a qualified dwelling EXEMPTION: If the residence to be purchased is within a targeted area or the borrower is a Veteran, neither borrower nor spouse need be first-time homebuyers! To obtain a list of targeted areas by County, please visit For borrowers choosing a home in a targeted area, different (higher) income limits and purchase price limits apply. If the loan officer determines that the applicant is eligible MCC, the application is completed. [Targeted Area is an area of the state containing qualified census tracts (QCT) or areas of chronic economic distress, as defined by the IRS. A QCT is a census tract in which seventy percent (70%) or more of the families have an income which is eighty percent (80%) or less of the median family income, as established by HUD] HOW IS THE MCC RESERVED? In order to reserve a Mortgage Credit Certificate, the Lender must make the reservation using the MITAS on-line loan reservation system at At the time the reservation is made, the MCC is valid for 60 days. Please note that MITAS is not addressed in this Guide. The document that addresses MITAS can be found at WHAT UNDERWRITING IS INVOLVED? The underwriting for an MCC is the same as the underwriting for the Smart Move program. There are two separate but simultaneous underwritings that occur: Credit Underwriting and Tax Code Compliance Underwriting. IHDA is only involved with the Tax Code Compliance Underwriting, which is unique to IHDA loans and is performed by IHDA Compliance Staff. Tax Code Compliance Underwriting consists of documenting three basic determinations: 1. Is the borrower(s) a first-time homebuyer(s) or exempt from this requirement? 2. Is the borrower s total household income within the allowable limits for the area in which they intend to reside? 3. Is the residence a qualified dwelling whose purchase price is within the allowable limits for the area in which it is located? Page 5

6 The Lender has 60 days from the reservation date to send the Tax Code Compliance Underwriting file to IHDA. For a detailed description of Tax Code Compliance Underwriting, please refer to the 2010 Home Start Procedural Guide. SUBMISSION FOR MCC COMMITMENT: If the borrower meets all program requirements, the lender will assemble the MCC documentation. The following is a list of documents needed and the order in which they should be assembled: 1. Data Summary Sheet (Form MCC-30) 2. Informational Acknowledgement (Form MCC-25) 3. Affidavit of Buyer Application (Form MCC-26) 4. Affidavit of Seller 5. Copies of complete, signed Federal income tax returns for the previous three years for each borrower and relevant party. W2 s are required for the most recent tax year filed. If a buyer was not required by law to file a federal income tax return for any year during the preceding three years, an Income Tax Affidavit is required (Form MCC- 27) 6. Lender Initial Certification (Form MCC-29) executed by an authorized representative of the lender 7. Notice to Homebuyers regarding recapture (Form MCC 1094) The MCC Tax Code Compliance file should be sent to the following address: Homeownership Programs Illinois Housing Development Authority 401 North Michigan Avenue, Suite 700 Chicago, Illinois WHAT HAPPENS NEXT? The MCC Tax Code Compliance file will be reviewed by IHDA within 72 hours after receipt. One of the following three determinations will be assigned to the file: 1. Approved A copy of the approval will be faxed to the Lender. 2. Pending A transmittal letter will be sent to the Lender detailing the changes that must be made and identifying additional documentation that is needed. 3. Rejected The entire Compliance file, including a written explanation as to why the MCC is not approved, will be sent to the Lender. You can check the status of the MCC by accessing the MITAS system. Page 6

7 CANCELLATION OR CHANGES PRIOR TO CLOSING: All cancellations must be made directly to IHDA. Changes to original documents (such as purchase price or loan amount) must be indicated on the Lender Closing Certificate. WHEN CAN THE MORTGAGE LOAN CLOSE? The mortgage loan cannot close prior to the MCC approval from IHDA. For existing structures, the mortgage loan must close within 60 days from the date of MCC approval. For new construction, the mortgage loan must close within 180 days from the date of MCC approval. MCC CLOSING PROCESS: After the MCC approval is received from IHDA, the mortgage loan can close. Please note that MCC closing documents are unique to MCC loans and closing personnel typically are not familiar with them; therefore, it is the Lender s responsibility to deliver the documents to the closing table for execution and forwarding to IHDA. IHDA cannot issue the MCC without them. Within 14 days after the mortgage loan closing, the lender must submit the following documents to IHDA: 1. Closing Affidavit (Form MCC-32) 2. Lender Closing Certificate (Form MCC-33) 3. Any documents as required by the approval 4. If the borrower files a Federal income tax return between the date of executing the Buyer Application Affidavit and the date of the mortgage, a copy of the signed Federal income tax return must be submitted to the Authority. Note: The Authority will not issue a MCC without having the prior three years of tax returns. The MCC Post Close file should be sent to the following address: Homeownership Programs Illinois Housing Development Authority 401 North Michigan Avenue, Suite 700 Chicago, Illinois ISSUING THE MORTGAGE CREDIT CERTIFICATE IHDA will review all closing documents. If approved, IHDA will deliver an executed Mortgage Credit Certificate (Form MCC-34) to the borrower. Please remind your buyer(s) to keep their MCC certificate in a safe place and submit a copy of the certificate to the IRS, not the original. Page 7

8 FEDERAL RECAPTURE TAX All IHDA programs are subject to the Federal Recapture Tax and the MCC Program is no exception. The prospective homebuyer must be provided with The Notice to Homebuyers for the MCC program (MCC 1094) at the time of application. The recapture worksheet will assist in explaining the unlikely possibility of the tax being assessed to the borrower. Please note, the Recapture Tax is covered in great detail in the Smart Move Procedural Guide. Please refer to it for an in-depth explanation. If you need further assistance, please contact a Homeownership Loan Officer. Please note: The IHDA Recapture Reimbursement Policy does not apply to borrowers utilizing a Mortgage Credit Certificate (MCC). WHAT IF THE BORROWER REFINANCES? Should the borrower refinance, the Department of Treasury has proposed temporary income tax regulations governing the re-issuance of Mortgage Credit Certificates. The regulations contain the following requirements for a re-issued MCC: 1. The MCC must be re-issued to the same holder with respect to the same property. 2. The re-issued MCC must entirely replace the existing MCC. 3. The certified mortgage indebtedness cannot increase. 4. The MCC credit rate cannot increase. 5. The re-issued MCC cannot result in an increase in the credit amount if the refinanced mortgage is extended. The term of the MCC must remain the same as the term of the original MCC. IHDA, not the Lender, will re-issue the MCC. In order to do that, IHDA will need to see a copy of (a) the new RESPA (HUD-1) and (b) a copy of the buyer s original MCC. If the buyer has had their MCC re-issued more than once, the buyer must provide copies of the prior re-issued MCCs. Please note: MCCs must be re-issued every time a buyer refinances. Failure to do so can result in the buyer incorrectly filing tax returns. Fees: The cost to the borrower to have the MCC re-issued is $ for each reissuance. The check should be made payable to Illinois Housing Development Authority and must accompany the request for re-issue. Page 8