IRS ANNOUNCES GUAM, PUERTO RICO, AND V.I. HOME PURCHASE PRICE SAFE HARBOR LIMITATIONS FOR MORTGAGE BOND ISSUERS.

Rev. Proc. 93-15

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 the average area purchase price safe harbor limitations for new and existing housing located in statistical areas in Guam, Puerto Rico and the Virgin Islands.

SEC. 2. BACKGROUND

01 Section 103(a) of the Code provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a "qualified bond" within the meaning of section 141. Section 141(e) provides that the term "qualified bond" means any private activity bond if that bond (1) is a qualified mortgage bond, (2) meets the volume cap requirements under section 146, and (3) meets the applicable requirements under section 147.

02 Section 143(a)(1)(A) of the Code provides that the term "qualified mortgage bond" means a bond that is issued as part of qualified mortgage issue. Section 143(a)(2)(A) provides that the term "qualified mortgage issue" means an issue of one or more bonds by a state or political subdivision thereof, but only if (i) all proceeds of the issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) the issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i) , and (m)(7) of section 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on financing provided by the issue are used not later than the close of the first semi-annual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds that are part of the issue.

03 An issue of bonds meets the requirements of subsection (e) of section 143 of the Code only if the acquisition cost of each residence financed by the issue does not exceed 90 percent of the average area purchase price applicable to that residence. In the case of a targeted area residence, the acquisition cost may exceed 90 percent, but must not exceed 110 percent, of the average area purchase price. The term "average area purchase price" means, with respect to any residence, the average purchase price of single-family residences (in the statistical area in which the residence is located) that were purchased during the most recent 12-month period for which sufficient statistical information is available. Separate determinations are made for new and existing residences, and for two-, three-, and four-family residences.

04 Section 143(e)(2) of the Code provided that the determination of the average area purchase price for a statistical area shall be made as of the date on which the commitment to provide the financing is made or, if earlier, the date of the purchase of the residence.

05 Section 6a.103A-2(f)(5)(i) of the Temporary Regulations under Title II of the Omnibus Reconciliation Act of 1980 (issued under former section 103A(f), the predecessor of section 143(e)) provides that an issuer may rely upon the average area purchase price safe harbor limitations published by the Department of the Treasury for the statistical area in which a residence is located.

06 An issuer may use a limitation different from the published safe harbor limitation if the issuer has more accurate and comprehensive data. See Section 6a.103A-2(f)(5)(i) of the temporary regulations. In such a case, when computing the average area purchase price for a statistical area that is a county, the issuer ordinarily must make the computation on an individual county basis and may not combine two or more counties.

07 Section 143(k)(2)(A) of the Code provides that the term "statistical area" means (i) a metropolitan statistical area (MSA), and'(ii) any county (or the portion thereof) that is not within an NSA.

08 An NSA is an area that contains a city of at least 50,000 population, or an urbanized area of at least 50,000 with a total metropolitan population of at least 100,000. If an area has more than one million population and meets certain other specified requirements, it is termed a "consolidated metropolitan statistical area" (CMSA), consisting of major components recognized as "primary metropolitan statistical areas" (PMSA). See Office of Management and Budget Release No. OMB-83-20, dated June 27, 1983.

09 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. In general, the recipient of a mortgage credit certificate may claim a federal income tax credit equal to the product of the certificate credit rate and the interest paid or accrued during the tax year on the remaining principal of the certified indebtedness amount. Section 25(c)(2)(A)(iii)(III) of the Code provides that the indebtedness certified by mortgage credit certificates must meet the purchase price requirements under section 143(e). Thus, the purchase price of the residence financed may not exceed 90 percent of the average area purchase price (110 percent in a targeted area).

10 Average area purchase price safe harbor limitations for the states and the District of Columbia and the national average purchase prices were most recently published in Rev. Proc. 92-34, 1992-1 C.B. 782.

11 Prior to the present revenue procedure, average area purchase price safe harbor limitations for Guam and Puerto Rico were set forth in Rev. Proc. 90-51, 1990-2 C.B. 625. Section 5.02 of Rev. Proc. 90- 51 provides that issuers may rely on those average area purchase price safe harbor limitations until they are rendered obsolete by a new revenue procedure, such as this one.

12 Section 143(f) of the Code imposes a requirement concerning the income of mortgagors for whom financing is provided under qualified mortgage bonds. Section 25(c)(2)(A)(iii)(IV) provides that the recipients of mortgage credit certificates must meet the income requirements under section 143(f). Under section 143(f)(1), this income requirement, is generally met only if 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. However, paragraph (5) of section 143(f) generally provides for an upward adjustment of the income requirement in areas (high housing cost areas) where the ratio of the area's housing costs to the area's median income is more that 20 percent higher than the analogous ratio computed on a national basis.

13 For purposes of determining whether an area is a high housing cost area under section 143(f)(5) of the Code, the issuer of bonds or certificates must compute the housing cost/income ratio under section 143(f)(5)(D). Two of the elements that must be considered in computing the housing cost/income ratio are the average purchase prices for new and existing residences located in the United States. Section 3.06 of Rev. Proc. 92-34 provides that for this purpose issuers must use as the nationwide average purchase price the figure of $150,100 for new residences and the figure of $119,100 for existing residences (based on data from a 12-month period ending august 31, 1991). These national average purchase prices are effective until they are rendered obsolete by a new revenue procedure.

SEC. 3. APPLICATION

The average area purchase price safe harbor limitations for Guam, Puerto Rico, and the Virgin Islands are set forth in Table 1. These limitations have not been adjusted to reflect either the 90 percent of the average area purchase price described in section 143(e)(1) of the Code or the 110 percent of the average area purchase price described in section 143(e)(5).

                                Table 1

Rev. Proc. 90-51 is obsolete except as provided in section 5.02 of this revenue procedure.

SEC. 5. EFFECTIVE DATES

01 Issuers may rely on the average area purchase price safe harbor limitations contained in 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 specified in the following sentence. The period begins on February 22, 1993, the date of publication of this revenue procedure in the Internal Revenue Bulletin, and ends on the date as of which these safe harbor limitations are rendered obsolete by a new revenue procedure.

02 Notwithstanding section 5.01 of this revenue procedure, issuers may continue to rely on the average area purchase price safe harbor limitations contained in Rev. Proc. 90-51 for mortgages financed with proceeds of bonds sold, or for certificates issued with respect to bond authority exchanged, before March 24, 1993, the date 30 days after publication of this revenue procedure in the Internal Revenue Bulletin, if the commitments to provide financing for the mortgages are made on or before May 24, 1993, the date 91 days after publication of this revenue procedure in the Internal Revenue Bulletin.

DRAFTING INFORMATION

The principal author of this revenue procedure is Patricia M. Monahan of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue procedure contact Ms. Monahan on (202) 622-3219 (not a toll- free call).