Housing groups and bond dealers are urging the Internal Revenue Service not to adopt a proposed change in the way the average area purchase price is determined associated with mortgages financed with the proceeds of single-family housing bonds.
The groups are concerned that the change the IRS is considering could lower average area purchase prices, squeeze off credit access for buyers, and shrink the pool of homes that qualify for financing provided by mortgage revenue bonds and mortgage credit certificates. The change could further disrupt the already-weak housing market, the groups argued in comment letters recently sent to the IRS.
Mortgage revenue bonds and mortgage credit certificates help finance about 100,000 home sales a year, according to the National Council of State Housing Agencies. By changing its pricing policy, the IRS “could have a significant negative impact on many local economies and possibly the national economy at a time we can least afford it,” the NCSHA said in a June 15 letter.
The IRS comment period on the proposal closed June 15. A change to the housing price limit would likely take effect next spring, the housing groups said.
To qualify for this type of mortgage, the buyer must be a first-time homebuyer and cannot earn more than a certain income. The qualifying buyer also needs to purchase a house priced below a certain ceiling.
The ceiling is currently set by the Federal Housing Administration’s single-family mortgage insurance loan limits and varies by region across the country. The IRS change would peg the qualifying price ceiling to the median county housing purchase price as determined by the Department of Housing and Urban Development.
The groups are concerned that by changing the home price ceiling, buyers will not find as many homes they would like to buy that will qualify for this type of financing.
The National Association of Local Housing Finance Agencies estimated that by shifting to the county, median sales price could shrink the available homes qualifying for this financing by 4% in the Los Angeles region, by 3% in New Orleans, by 34% in Miami and 40% in Tampa.
“The housing market is pretty fragile,” said William Daly, senior vice president for the Bond Dealers of America, which submitted a comment letter to the IRS on June 14. He said it is not clear why the IRS is considering this change, but at this point in the housing recovery, “we thought it is not a good time” for the service to be looking at the price level changes, he said.
In its letter opposing the change, the NALHFA said the current home pricing structure helped housing finance agencies participate in the Obama administration’s new-issue bond purchase program.
This program, established in October 2009 and scheduled to expire at the end of this year, “is turning out to be the Obama administrations’ most successful response to the nation’s housing crisis,” the NALHFA said in its June 14 comment letter.
The IRS change means the “available stock could be constrained,” said John Murphy, the NALHFA’s executive director. “We’re trying to assist homebuyers to give them as much opportunity to find homes to buy.”
