RECAPTURE TAX
A portion of the MCC benet is subject to recapture
by the Internal Revenue Service if a recipient meets all
three of the following conditions:
1. the borrower sells the home within nine years
of purchase;
2. the borrower earns signicantly more income than
when he/she bought the home;
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and
3. the borrower has a gain from the sale of the home.
Only borrowers who meet all three criteria will be
subject to recapture. MCC borrowers are not subject to
recapture if they sell, give away, or dispose of the home
more than nine full years after closing. The maximum
amount of recapture, which is payable on the sale of
the home, is 6.25 percent of the original principal bal-
ance of the loan or 50 percent of the gain on the sale
of the home, whichever is less.
Most HFAs report that the majority of their pro-
gram recipients are not subject to tax recapture.
Nevertheless, many HFAs have Reimbursement
Recapture Tax programs that will reimburse borrowers
for any recapture tax incurred.
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Number of HFAs that Offer MCCs
Of the 54 HFAs found in this Guide, 33 HFAs offer
mortgage tax credit certicates.
BANK ELIGIBILITY AND APPLICATION PROCESS
HFA MCC program approval requirements are gener-
ally more streamlined than the process to become an
approved rst mortgage and down payment assistance
approved lender. To use MCC programs, lenders need
to be approved by the insuring agency for which they
originate loans, i.e., the Federal Housing Administration
(FHA), the U.S. Department of Veterans Affairs (VA), the
U.S. Department of Agriculture’s Rural Housing Services
(RHS), Fannie Mae, or Freddie Mac and have an ofce
physically located in the state for which it is approved.
Minimum net asset requirements may apply. Generally,
lenders will need to sign a participation agreement that
outlines the lender’s responsibilities and requirements
associated with the program, such as submitting docu-
ments for approval to the HFA and record-keeping
responsibilities. Participation agreements generally
outline the documentation and borrower certication
requirements associated with the program. In many
cases, the HFAs charge an annual fee for lenders to
participate in the program.
BORROWER CRITERIA
Income and sales price limits: Income and sales price
limits are standard eligibility requirements for all MCC
programs. These limits vary by state.
First-time homebuyers: MCC programs are limited to
rst-time homebuyers (borrowers who have not had
an ownership interest in a principal residence in three
years). The rst-time homebuyer requirement is waived
for those borrowers purchasing a home in targeted
areas as dened by the U.S. Department of Housing
and Urban Affairs (HUD) at the census tract level or
designated as such by state governments, as well as for
active military and veterans.
Occupancy: Borrowers must use the home as their
principal/primary residence.
Homeownership counseling: Many HFA programs
require some form of pre-purchase homebuyer educa-
tion. These requirements vary by state.
PROGRAM CRITERIA
First loan purpose combined with MCCs: MCCs are
restricted to use in combination with purchase loans
(renances are not eligible). However, if a borrower cur-
rently has an MCC, and decides to renance into a new
mortgage, many programs allow the borrower to apply
to receive a new MCC issued against their renanced
mortgage.
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A borrower will not meet this condition for recapture unless they earn the
maximum income limit that would have applied to their qualifying household
size at the time of purchase, compounded by 5 percent per year from the date
of purchase until the home is sold or transferred.
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The following HFAs offer a recapture tax reimbursement program:
Connecticut, Idaho, Maine, Massachusetts, New York, North Dakota, Ohio, and
South Dakota. Check with your state HFA to determine whether they offer a
recapture tax reimbursement program.
25 | FDIC | Affordable Mortgage Lending Guide