IRS RELEASES HUD'S MEDIAN GROSS INCOME FIGURES.

Rev. Proc. 91-35

SECTION 1. PURPOSE

This revenue procedure provides guidance concerning the United States and area median gross income figures that are to be used by issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in section 25(c), in computing the housing cost/income ratio described in section 143(f)(5).

SEC. 2. BACKGROUND

01 Bonds issued by a state or local government to provide financing for over-occupied residences must satisfy the requirements of section 143(a)(2) of the Code to be "qualified mortgage bonds." The interest on qualified mortgage bonds is excluded from gross income under section 103(a) if these and certain additional requirements are satisfied. A state or local government may elect to exchange all or part of its qualified mortgage bond authority for authority to issue mortgage credit certificates. Recipients of mortgage credit certificates issued by a state or local government are allowed a credit against federal income tax for a portion of the interest paid or accrued on indebtedness used to finance owner- occupied residences provided that the requirements of section 25 are satisfied.

02 Section 143(f) of the Code imposes eligibility requirements concerning the maximum income of mortgagors for whom financing may be provided by qualified mortgage bonds. Section 25(c)(2)(A)(iii)(IV) provides that recipients of mortgage credit certificates must meet the income requirements of section 143(f). Generally, under sections 143(f)(1) and 25(c)(2)(A)(iii)(IV), these income requirements are met only if all owner-financing under a qualified mortgage bond and all certified indebtedness amounts under a mortgage credit certificate program are provided to mortgagors whose family income is 115 percent or less of the applicable median family income. Under section 143(f)(6), the income limitation is reduced to 100 percent of the applicable median family income if there are fewer than three individual in the family of the mortgagor.

03 Section 143(f)(4) provides the term "applicable median family income" means the greater of (A) the area median gross income for the area in which the residence is located or (B) the statewide median gross income for the state in which the residence is located.

04 Section 143(f)(5) of the Code provides for an upward adjustment of the income requirements in certain high housing cost areas. Under section 143(f)(5)(C), a high housing cost area is a statistical area for which the housing cost/income ratio is greater than 1.2. The housing cost/income ratio is determined under section 143(f)(5)(D) by dividing (a) the applicable housing price ratio by (b) the ratio that the area median gross income bears to the median gross income for the United States. The applicable housing price ratio is the new housing price ratio (new housing average purchase price divided by the new housing average purchase price for the United States) or the existing housing price ratio (existing housing average area purchase price divided by existing housing average price for the United States), whichever results in the housing cost/income ratio being closer to 1. This income adjustment applies only to bonds issued and nonissued bond amounts elected after December 31, 1988.

05 The Department of Housing and Urban Development (HUD) has computed the median gross income for the United States, the states, and statistical areas within the states. The income information was released to the HUD regional offices on March 7, 1991, and may be obtained by calling the HUD reference service at 800-245-2691 or, in the Washington, D.C., area, at 301-251-5154. The Internal Revenue Service annually publishes only the national median income.

06 The most recent nationwide average purchase price and average area purchase price safe harbor limitations were published on February 19, 1991, in Rev. Proc. 91-17, 1991-7 I.R.B. 23.

SEC. 3. APPLICATION

01 When computing the housing cost/income ratio under section 143(f)(5) of the Code, issuers of qualified mortgage bonds and mortgage credit certificates must use $38,000 as the median gross income for the United States. See section 2.05 of this revenue procedure.

02 When computing the housing cost/income ratio under section 143(f)(5) of the Code, issuers of qualified mortgage bonds and mortgage credit certificates must use the area median gross income released by HUD on March 7, 1991. See section 2.05 of this revenue procedure.

SEC. 4. EFFECTIVE DATES

01 Issuers must use the United States and area median gross income figures specified in section 3 of this revenue procedure for commitments to provide financing that are made, or (if the purchase precedes the financing commitment) for residences that are purchased in the period that begins on March 7, 1991, the date HUD released the income figures, and ends on the date when these United States and area median gross income figures are rendered obsolete by a new revenue procedure.

02 Notwithstanding section 3 of this revenue procedure, issuers may continue to rely on the United States and area median income figures described in Rev. Proc. 90-25 with respect to bonds originally sold and nonissued bond amounts elected not later than July 24, 1991, if the commitments or purchases described in section 4.01 are made not later than September 23, 1991.

SEC. 5. EFFECT ON OTHER DOCUMENTS

01 Rev. Proc. 90-25 is obsolete except as provided in section 4.02 of this revenue procedure.

02 This revenue procedure does not affect the effective date provisions of Rev. Rul. 86-124, 1986-2 C.B. 27. Those effective date provisions will remain operative at least until the Service publishes a new revenue ruling that conforms the approach to effective dates set forth in Rev. Rul. 86-124 to the general approach taken in this revenue procedure.

DRAFTING INFORMATION

The principal author of this revenue procedure is Patricia M. Monahan of the Office of Assistant Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. Monahan on (202) 566-4414 (not a toll- free call).