Mortgage credit certificates - Delaware State Housing Authority

Report
MORTGAGE CREDIT
CERTIFICATES (MCC)
Financing Future Borrowers: A Panel Discussion
2014 Delaware Governor’s Conference on Housing
October 7, 2014
Stephen D. Silver, CFO
Maryland Department of Housing & Community Development
Maryland Department of Housing and Community Development
October 7, 2014
Overview of the MCC
• The program serves first-time home buyers in the
low- to moderate-income ranges
• The program is administered by state and local
housing finance agencies, but not all states issue
the certificates
• Issuance of MCCs is based on conversion of
each agencies’ private activity bond volume cap
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Maryland Department of Housing and Community Development
October 7, 2014
History of the MCC
• The Mortgage Credit Certificate (MCC) program is a
federal home buyer assistance program designed to
help lower-income families afford home ownership
• The program was established in the U.S. Treasury by
the Deficit Reduction Act of 1984; modified by the Tax
Reform Act of 1986
• The MCC allows the home buyer to claim a dollar-for-
dollar tax credit for a portion of the mortgage interest
paid per year, up to $2,000
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Maryland Department of Housing and Community Development
October 7, 2014
MCC Mechanics
• The MCC is issued to the home buyer/owner,
who receives a tax credit each year
• The tax credit is equal to the mortgage interest paid times and the
“Certificate Credit Rate” which is set by the administering agency
between 10 and 50 percent
• The home owner must file the appropriate IRS
form each year to claim the credit
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Maryland Department of Housing and Community Development
October 7, 2014
There are other factors that will impact the
size of the homeowner’s tax credits…
•Certificate Credit Rate
•Mortgage Size
•Interest Rate
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Maryland Department of Housing and Community Development
October 7, 2014
Maryland’s MCC Program
• Called Maryland HomeCredit
• Started June 1, 2014
• Maryland’s Certificate Credit Rate = 25%
• Best savings for borrower is to couple with
DHCD’s Maryland Mortgage Program (MMP)
• Tied to MMP: $450 DHCD Fee plus $350 Lender Fee
• MCC Only: $1,100 DHCD Fee plus $700 Lender Fee
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Maryland Department of Housing and Community Development
October 7, 2014
A sample MCC calculation
Mortgage Amount
$200,000
Interest Rate
4.25%
Interest Paid
$8,435
MCC Credit Rate
25%
Eligible Credit Amount
$2,000
Itemized Deduction Amount
$6,435
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Maryland Department of Housing and Community Development
October 7, 2014
The Value of a Maryland HomeCredit
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Maryland Department of Housing and Community Development
October 7, 2014
Maryland HomeCredit Calculations
An Excel spreadsheet is used to estimate benefit to individual borrowers:
Mortgage Credit Certificate (MCC): Homeowner Benefit Schedule
4.250%
4.625%
4.875%
Use Drop down box if this a Maryland
Mortgage Program (MMP) loan. If not, leave
the mortgage type blank.
MMP Loan Type
Mortgage Interest Rate
1st Mortgage Amount
4.500%
$175,000
MCC Credit Rate Applied to
the Eligible Mortgage
(if this is a MMP Loan and a loan type is entered above;
the rate can be blank and spreadsheet will default to a
rate)
Enter the expected First Mortgage amount
Enter the expected First Payment Date on
First Mortgage; No entry will default to the
beginning of the calendar year.
1st Mortgage Payment Date
Monthly Principal &
Interest Payments
Enter Mortgage Interest Rate (preferred)
$886.70
25%
This is a calculated field in Model based
mortgage amount and interest rate entered
This is the MCC Credit Rate being used by the MD
Department of Housing and Community
Development (DHCD) ; it is a default in Model. All
loans must use this MCC Rate.
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Maryland Department of Housing and Community Development
October 7, 2014
Results for Maryland
• Since start, about 25% of borrowers
have utilized the MMP/MCC option
• Steady growth since inception
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Maryland Department of Housing and Community Development
October 7, 2014
Benefits for Borrowers
• Lowers monthly costs of being a homeowner
• Some lenders treat tax credit as income, which
could increase borrowing power by about 3%
• If treated as a reduction in mortgage payment,
can increase purchase power by almost 10%
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Maryland Department of Housing and Community Development
October 7, 2014
Questions?
• Contact:
• Stephen D. Silver, CFO at [email protected]
• The Maryland Mortgage Program at 1-800-638-7781
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