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Presentation, discussion, and possible action regarding Resolution No. 26-003 authorizing the implementation of Texas Department of Housing and Community Affairs Mortgage Credit Certificate Program 113, approving the form and substance of the program manual and the program summary, authorizing the execution of documents and instruments necessary or convenient to carry out Mortgage Credit Certificate Program 113, and containing other provisions relating to the subject
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RECOMMENDED ACTION
recommendation
Adopt attached Resolution.
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BACKGROUND
Mortgage Credit Certificates are a homebuyer assistance program designed to help low-to-moderate income families afford homeownership. The program allows homebuyers to claim a dollar‐for‐dollar tax credit equal to the annual mortgage loan interest paid times the MCC credit rate (established by the Department and described herein), subject to an annual maximum of $2,000 if the MCC Credit Rate exceeds 20%. Remaining mortgage interest paid may still be taken as an itemized deduction.
Because the MCC reduces the homebuyer’s federal income tax liability, the credit amount may be used to effectively increase the homebuyer’s net income for loan qualification purposes. Mortgage loan interest paid by the homebuyer that exceeds the credit claimed may be included as an itemized deduction on the homebuyer’s annual federal income tax return.
To be eligible for an MCC, homebuyers must meet Internal Revenue Service (IRS) requirements for mortgage revenue bonds. With few exceptions, MCC recipients must be first-time homebuyers (cannot have had an ownership interest in a primary residence within the last three years), must be within IRS income and purchase price limits, and must occupy the residence as their primary residence. MCCs cannot be issued for mortgage loans that are funded with tax-exempt bond proceeds.
MCCs require an allocation volume cap. The Department can exchange $1 of single-family mortgage revenue bond volume cap for $0.25 of MCC issuance authority. The par amount of mortgage loans that can receive an MCC is determined by dividing the MCC issuance authority by the MCC Credit Rate, which is established by the Department. The IRS requires the MCC Credit Rate to be between 10% and 50%.
The Department offers two MCC program options. The first is a stand-alone MCC, where the Department issues an MCC for a mortgage loan that was originated and funded by a third-party lender. The second option is a “combo” loan, where the Department issues an MCC for a mortgage loan that was originated and funded through the Department’s Taxable Mortgage Program.
Program 103, the Department’s most recent MCC program, was released January 2023, ends on December 31, 2025; and used $300 million of volume cap.
Publication of the required Public Notice for Mortgage Credit Certificate Program for Program 113 will be completed before November 30, 2025, and Program 113 is scheduled for release in January 2026. The attached resolution seeks authorization for the conversion of $250 million of single-family volume cap to MCC Authority (see Volume Cap Conversion below) and the issuance of new MCCs. The resolution also seeks approval of (i) the Program Manual and Program Summary, (ii) initial MCC Credit Rates of 20% for all loans, and (iii) the use of up to $100,000 of Department funds to pay the costs of implementing Program 113.
Through Program 113, the Department expects to provide MCCs for approximately $312.5 million in mortgage loans, using $250 million in volume cap:
Single Family Bond Volume Cap $250,000,000 = Par Amount of Bond Loans that can be originated
Exchange $1 for $0.25 $62,500,000 = MCC Issuance Authority
Divide by MCC Credit Rate (20%) $312,500,000 = Max Par Amount of Loans that can receive MCCs