SERVICE ISSUES REVENUE PROCEDURE FOR USE OF NATIONAL AND AREA MEDIAN GROSS INCOME FIGURES BY MORTGAGE BOND ISSUERS.

Rev. Proc. 90-25

SECTION 1. PURPOSE

This revenue procedure provides guidance concerning the national 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 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, 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, however, 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 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.

04 The Department of Housing and Urban Development (HUD) has computed the median gross income for the United States, the states, statistical areas within the states, and the District of Columbia for the fiscal year ending September 30, 1990. This income information was released to the HUD regional offices on February 1, 1990. The most recent national average purchase prices and average area purchase price safe harbor limitations were published in Rev. Proc. 89-59, 1989-45 I.R.B. 27. Rev. Proc. 89-59 was modified by Rev. Proc. 90-24, page 15, this Bulletin.

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 $35,700 (estimated for the fiscal year ending September 30, 1990).

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 appropriate area median gross income for the fiscal year ending September 30, 1990, referred to in section 2.04 of this revenue procedure.

SEC. 4. EFFECTIVE DATES

01 Except as provided in section 4.02, issuers of qualified mortgage bonds and mortgage credit certificates must use the national median gross income and area median gross income referred to in section 3 of this revenue procedure for purposes of computing the housing cost/income ratio under section 143(f)(5) of the Code for commitments to provide financing that are made, or (if the purchase of the residence precedes the financing commitment) for residences that are purchased, in the period beginning on February 1, 1990, the date HUD released the income figures, and ending on the date as of which these national and area median gross income figures are rendered obsolete by a new revenue procedure.

02 Issuers of qualified mortgage bonds or mortgage credit certificates may continue to rely on the national and area median gross incomes estimated for the fiscal year ending September 30, 1989, and described in Rev. Proc. 89-32, 1989-1 C.B. 904, for (1) commitments to provide financing for mortgages with respect to bonds originally sold not later than May 30, 1990, 30 days after the date of publication of this revenue procedure in the Internal Revenue Bulletin, and (2) commitments to issue mortgage credit certificates with respect to nonissued bond amounts elected not later than May 30, 1990. The preceding sentence applies only if the commitments described in (1) and (2) are made not later than July 30, 1990, 91 days after publication of this revenue procedure in the Bulletin.

03 The Service anticipates that when the national and area median gross income figures described in section 3 of this revenue procedure are rendered obsolete by the publication of a new revenue procedure, issuers of qualified mortgage bonds and mortgage credit certificates will be permitted to continue to use the income figures for commitments to provide financing that are made or (if the purchase of the residence precedes the financing commitment) for residences that are purchased, with respect to bonds originally sold and nonissued bond amounts elected not later than 30 days after the date of publication of the new revenue procedure in the Internal Revenue Bulletin if the commitments or purchases are made not later than 90 days after publication of the new revenue procedure in the Bulletin.

SEC. 5. EFFECT ON OTHER DOCUMENTS

01 Rev. Proc. 89-32 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 remain operative at least until the Service publishes a new revenue ruling that conforms the approach to effective dates for the use of income data to the general approach taken in this revenue procedure.

03 Announcement 89-73, 1989-24 I.R.B. 79, is superseded.

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).