Concerns About Alternate Method for Setting Home Purchase Prices
By Alison Bennett
Publication Date: 07/17/2012
State and federal housing associations and agencies are expressing sharp concerns about a potential new method for setting the average purchase price for homes financed through qualified mortgage bonds and mortgage certificates.
Their comments come in response to the Internal Revenue Service's Revenue Procedure 2012-25. In that guidance, IRS said the government is considering a possible new method that would use Department of Housing and Urban Development (HUD) data on county median housing purchase prices.
In recent letters to IRS, the National Associati0n of Home Builders (NAHB), the Virginia Housing Development Authority (VDHA), and the Minnesota Housing Finance Agency (MHFA) all said they were concerned that such a method would limit the number of affordable homes and restrict credit to first-time home buyers, among other negative impacts.
Bond Issuers Use Prices to Determine Financing
In general, the average purchase price provides a safe harbor and is used by bond issuers as they try to determine financing for homes and calculate the housing cost-to-income ratio for new and existing homes.
In a May 16 letter, NAHB urged the government to retain the existing data method for determining safe harbor purchase price limits for the mortgage revenue bond (MRB) and mortgage credit certificate (MCC) programs.
“Replacing the existing system would restrict credit to first-time homebuyers, reduce housing demand, and further depress home prices,” the association said.
NAHB noted that the MRB and MCC programs are used in connection with more than 100,000 home sales per year. “Changes in this program could have serious impacts on local housing markets,” the group said.
The association said it remains unclear which HUD data would be used to determine median county home prices and how that data would be transformed.
The advantage of using applicable federal loan limits, which include floors and ceilings, is that they are stable and widely used, NAHB said.
“This is particularly important in a period characterized by dramatic declines in housing prices and difficulty in gathering accurate price data due to volatility associated with both market conditions and policy changes,” the association said.
Virginia Housing Authority Raises Major Concerns
Writing to IRS July 10, VHDA said the alternative method outlined in Rev. Proc. 2012-25 would not provide adequate data samples and would have a damaging effect on the housing market in Virginia.
The Virginia housing authority said the method could have a domino effect, likely reducing sales prices from current program limits in 117 of 134 jurisdictions in the state. The lower sales price limits then would “substantially limit the number of available homes affordable for potential homebuyers,” VHDA said.
The agency said that “borrowers in need of VHDA's programs would be very restricted in the location and type of housing, resulting in high concentrations of low income homeowners in certain areas.”
In addition, the lower limits would make it tougher for housing finance agencies nationwide to help distressed markets recover in jurisdictions with a high rate of foreclosures, VHDA said.
The complete text of this article can be found in the BNA Daily Tax Report, July 17, 2012. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2012, The Bureau of National Affairs, Inc.