SERVICE ANNOUNCES U.S. MEDIAN GROSS INCOME AND AVERAGE HOME PURCHASE PRICE; FIGURES ARE USED IN DETERMINING MORTGAGE BOND QUALIFICATION.

Rev. Proc. 89-32

SECTION 1. PURPOSE

This revenue procedure provides 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), with (1) the median gross income for the United States and (2) the average purchase prices for new and existing residences located in the United States.

SEC. 2. BACKGROUND

01 Bonds issued by a state or local government to provide financing for owner-occupied residences must satisfy the requirements under section 143(a)(2) of the Code if the bonds are to be classified as "qualified mortgage bonds." The interest on qualified mortgage bonds is excludable from gross income under section 103(a) if 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 income requirements of section 25 are satisfied. The income requirements that are imposed on the users of proceeds of qualified mortgage bonds are identical to those imposed on the recipients of mortgage credit certificates. Sections 143(f) and 25(c)(2)(A)(iii)(IV).

02 Generally, under sections 143(f) and 25(c)(2)(A)(iii)(IV) of the Code, as amended by the Technical and Miscellaneous Revenue Act of 1988 (Act), Pub. L. No. 100-647, section 4005(b) and (c), 102 Stat. 3342, the income requirements are met 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. The income limitation is reduced to 100 percent if there are fewer than three members in the mortgagor's family.

03 Section 143(f)(5) of the Code provides that the income requirement in certain statistical areas is adjusted based on the relation of housing costs to income. A statistical area is a "high housing cost area" if its housing cost/income ratio is greater than 1.2. The housing cost/income ratio is determined 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 area 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 purchase price for the United States), whichever results in the housing cost/income ratio being closer to 1.

04 Section 4005(h) of the Act provides, in general, that the amendments made by section 4005(b) and (c) will apply to bonds issued, and nonissued bond amounts elected, after December 31, 1988.

05 The Department of Housing and Urban Development (HUD) has computed (1) the median gross income for the United States for the fiscal year ending September 30, 1989, and (2) the average purchase prices for new and existing residences located in the United States using data from calendar year 1987.

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 as the median gross income for the United States a figure of $34,000 (estimated for the fiscal year ending September 30, 1989) and must use as the average purchase prices for residences located in the United States figures of $127,800 for new residences and 8105,200 for existing residences (based on data from calendar year 1987).

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 for the fiscal year ending September 30, 1989.

03 When computing the housing cost/income ratio under section 143(f)(5) of the Code, an issuer of qualified mortgage bonds and mortgage credit certificates must use the average area purchase price safe harbor limitations contained in Rev. Proc. 88-48, 1988-39 I.R.B. 39, unless the issuer computes a different average area purchase price based on more accurate and comprehensive data. Any such computation of different average area purchase prices must use data from a 12-month period that does not begin earlier than July 1, 1986, or end later than June 30, 1988.

SEC. 4. EFFECTIVE DATES

01 The median gross income for the United States set forth in section 3.01 is effective for (1) commitments to provide financing for mortgages with respect to bonds that are issued no sooner than January 1, 1989, and that are sold by the issuer not later than 29 days after the date the Internal Revenue Service publishes an updated figure in the Internal Revenue Bulletin, and (2) commitments to issue certificates with respect to nonissued bond amounts elected no sooner than January 1, 1989, and not later than 29 days after the date the Service publishes the updated figure in the Bulletin, but only if the commitments described in (1) and (2) are made not later than 89 days after the date the Service publishes the updated figure in the Bulletin.

02 The average purchase prices for residences located in the United States set forth in section 3.01 are effective for bonds issued and nonissued amounts elected for the period beginning January 1, 1989, and ending on the date such average purchase prices are rendered obsolete by a new revenue procedure.

03 Issuers of qualified mortgage bonds and mortgage credit certificates may rely on the fiscal year 1987 or 1988 national and area median gross income figures released by HUD for purposes of computing the housing cost/income ratio under section 143(f)(5) of the Code with respect to bonds sold and nonissued bond amounts elected not later than July 11, 1989, 29 days after the date of publication of this revenue procedure in the Internal Revenue Bulletin, if the commitments to provide financing for mortgages, in the case of qualified mortgage bonds or the commitments to issue certificates, in the case of mortgage credit certificate programs, are made not later than September 9, 1989, 89 days after the date of publication of this revenue procedure in the Internal Revenue Bulletin, but only if the issuer uses area median gross income figures released by HUD for the same period as those used for the median gross income for the United States.

DRAFTING INFORMATION

The principal author of this revenue procedure is Gene Overton of the Office of Assistant Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Mr. Overton on (202) 566-4310 (not a toll-free call).