Title of Regulation: 13VAC10-190. Rules and Regulations for Qualified Mortgage Credit Certificate Programs (adding 13VAC10-190-10 through 13VAC10-190-200).

Statutory Authority: § 36-55.30:3 of the Code of Virginia.

Public Hearing Information: November 17, 2014 - 10 a.m. - Virginia Housing Development Authority, 601 South Belvidere Street, Richmond, VA 23220

Public Comment Deadline: November 17, 2014.

Agency Contact: Paul M. Brennan, General Counsel, Virginia Housing Development Authority, 601 South Belvidere Street, Richmond, VA 23220, telephone (804) 343-5798, or email paul.brennan@vhda.com.

Summary:

The proposed regulations will govern how the Virginia Housing Development Authority awards and distributes mortgage credit certificates in accordance with all applicable laws and regulations for each mortgage credit certificate program it chooses to create pursuant to § 25 of the Internal Revenue Code (Title 26 of the United States Code).

CHAPTER 190
RULES AND REGULATIONS FOR QUALIFIED MORTAGE CREDIT CERTIFICATE PROGRAMS

13VAC10-190-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings, unless the context clearly indicates otherwise:

"Applicant" means the individual applying for a mortgage credit certificate.

"Authority" means the Virginia Housing Development Authority, a political subdivision of the Commonwealth of Virginia constituting a public instrumentality.

"Certificate credit rate" has the meaning set forth in IRC § 25.

"Certified indebtedness" has the meaning set forth in IRC § 25. It is the indebtedness or portion thereof that the applicant will incur to acquire his principal residence and that, in the determination of the authority, meets the requirements of IRC § 25 and will be used in calculating the amount of the potential tax credit under the mortgage credit certificate.

"Commitment" means the obligation of the authority to provide a mortgage credit certificate to an eligible applicant pursuant to an approved application.

"Commitment term" means the period of time during which the applicant must close on his loan to be entitled to a mortgage credit certificate pursuant to his commitment.

"Executive director" means the executive director of the authority or any other officer or employee of the authority who is authorized to act on behalf of the director or the authority pursuant to a resolution of the board of the authority.

"Internal Revenue Code" or "IRC" means Title 26 of the United States Code, as the same may be amended from time to time.

"Loan" means any extension of credit that finances the purchase of and will be secured by a principal residence.

"Mortgage credit certificate" or "MCC" means a certificate issued by the authority pursuant to IRC § 25.

"Participating lender" means any person or organization that is legally authorized to engage in the business of making loans for the purchase of principal residences and meets the qualifications in this chapter to participate in the programs.

"Principal residence" means a dwelling that will be occupied as the primary residence of the purchaser, that will not be property held in a trade or business or as investment property, that is not a recreational or second home, and no part of which will be used for any business purposes for which expenses may be deducted for federal income tax purposes.

"Program" means a qualified mortgage credit certificate program as defined in IRC § 25, in particular IRC § 25(c)(2)(A).

"Private activity bonds" has the meaning set forth in IRC § 141.

13VAC10-190-20. Description of the program.

The authority may establish one or more programs pursuant to IRC § 25. Each program will be established by the authority when the executive director elects not to issue an amount of private activity bonds that the authority could have issued from its allocation of private activity bonds pursuant to IRC § 146 and to utilize that allocation to issue MCCs. Each instance of the executive director making that determination will result in a separate program.

13VAC10-190-30. Purpose, applicability, and scope of regulations.

A. All programs described in 13VAC10-190-20 and all of the MCCs issued by the authority pursuant to such programs are subject to this chapter.

B. This chapter is intended to provide a general description of the authority's requirements and processing and is not intended to include all actions involved or required in the processing and administration of MCCs. This chapter is subject to amendment by the authority at any time and may be supplemented by policies, rules, and regulations adopted by the authority from time to time with respect to all of the programs.

C. Notwithstanding anything to the contrary in this chapter, the executive director is authorized with respect to any MCC program to waive or modify any provision of this chapter where deemed appropriate by him for good cause, to the extent not inconsistent with the IRC.

D. Notwithstanding anything to the contrary in this chapter, MCCs can only be issued when and to the extent permitted by the IRC and the applicable federal laws, rules, and regulations governing the issuance of MCCs.

E. Notwithstanding anything to the contrary in this chapter, the federal laws, rules, and regulations governing the MCCs shall control over any inconsistent provision in this chapter, and individuals to whom MCCs have been issued shall be entitled to the privileges and benefits thereof only to the extent permitted by the IRC.

F. Wherever appropriate in this chapter, the singular shall include the plural; the plural shall include the singular; and the masculine shall include the feminine.

13VAC10-190-40. Eligible persons.

The authority may issue an MCC to an individual only if he would be eligible to be a borrower of a tax exempt bond financed loan pursuant to 13VAC10-40-30, 13VAC10-40-40, 13VAC10-40-50, 13VAC10-40-70, 13VAC10-40-90, and 13VAC10-40-100.

13VAC10-190-50. Eligible properties.

The authority may issue an MCC to an individual only if his application for the MCC is based upon his purchasing a principal residence that would be eligible for a tax exempt bond financed loan pursuant to 13VAC10-40-40 through 13VAC10-40-80.

13VAC10-190-60. Eligible lenders.

The authority may issue an MCC to an individual only if his application for the MCC is based upon his obtaining a loan from a participating lender.

13VAC10-190-70. Eligible loans.

The authority may issue an MCC to an individual only if his application for the MCC is based upon a loan that:

1. Is not funded in whole or in part from the proceeds of a qualified mortgage bond or a qualified veteran's mortgage bond as defined in IRC § 143,

2. Is incurred by the applicant to acquire his principal residence,

3. Is not being assumed from another borrower, and

4. Is not a refinancing of other indebtedness of the applicant, except in the case of construction period loans, bridge loans, or similar temporary financing that has a term of 24 months or less.

13VAC10-190-80. Determination of the amount of each program.

The executive director shall determine the amount, if any, of private activity bonds that the authority will elect not to issue and the amount, if any, of each program (program amount) as determined pursuant to the applicable portions of 26 CFR 1.25-4T, 26 CFR 1.25-5T, and 26 CFR 1.25-7T, subject to revocation, in whole or in part, by the executive director pursuant to 26 CFR 1.25-4T(c)(3). Nothing contained in this chapter shall be construed to require the commitment for or issuance of any MCC or to entitle any applicant to an MCC if no program amount is available for such MCC.

13VAC10-190-90. Portions of each program amount to be set aside.

For each program, the executive director may set aside a portion of the program amount, in an amount determined by the executive director to be appropriate, that will not be used to issue MCCs until such time and in such amount as may be determined by the executive director to be appropriate to comply with the requirements of IRC § 25 and the related U.S. Department of the Treasury regulations.

13VAC10-190-100. Determination of certificate credit rate.

For each program, the executive director shall establish the certificate credit rate in accordance with the limits set by IRC § 25(d), subject to change from time to time as he shall deem necessary or appropriate to accomplish the purpose of the program. The certificate credit rate shall be specified on each MCC issued under the program.

13VAC10-190-110. Certification of lenders.

A. For each program, the executive director shall establish criteria for lenders to be approved by the authority as participating lenders, which criteria may include one or more of the following: (i) completion of required training; (ii) agreement to follow the authority's policies and procedures relating to the issuance of MCCs; (iii) agreement to be subject to penalties, including disqualification as participating lenders, or liabilities for violating the authority's policies and procedures; and (iv) payment of participation fees. The executive director may specify the circumstances under which the satisfaction of such criteria shall remain valid for subsequent programs.

B. In addition to the criteria in subsection A of this section, no lender may process applications for MCCs that is not (i) permitted by law to loan money for the acquisition of principal residences in Virginia, (ii) the lender that actually makes the loan for which the MCC is requested, and (iii) in good standing with all applicable licensing and regulatory authorities with jurisdiction over such lender.

C. Each participating lender shall execute such agreements and documents as the authority may require to participate in the programs and, in the event of any breach by such participating lender of any of the terms of any such agreement or document, the participating lender may be terminated by the authority from participation in the programs.

13VAC10-190-120. Fees.

For each program, the executive director shall establish (i) the fees charged lenders to participate in such program and (ii) the fees charged each applicant for the processing of the application and the issuance of the applicant's MCC. The executive director may establish lower fees for participating lenders that are approved by the authority as loan originators under 13VAC10-40 and for MCC applicants whose loans will be purchased by the authority.

13VAC10-190-130. Terms of each program.

For each program, the executive director may establish a deadline for the receipt of applications for MCCs for any purpose determined by the executive director to be necessary or appropriate for the administration of the program, including so the authority can safeguard against issuing any MCCs after the expiration of its authority to do so pursuant to IRC § 25(e)(3)(B).

13VAC10-190-140. Priority of applications.

Subject to (i) the set asides described in 13VAC10-190-90 and 13VAC10-190-150 and (ii) the deadline for receipt of applications described in 13VAC10-190-130, the authority shall process applications in the order the authority receives them.

13VAC10-190-150. Targeted areas.

For each program, the authority may set aside 20% of the program amount for use in targeted areas, as specified by IRC § 25 and the related U.S. Department of the Treasury regulations for a period of one year from the date on which the MCCs under that program are first made available. In addition, the authority may take all other necessary steps to comply with the targeted area requirements imposed by IRC § 25 and the related U.S. Department of the Treasury regulations.

13VAC10-190-160. Discretion to allocate.

Notwithstanding anything to the contrary in this chapter, in administering each program, the executive director may make allocations and may impose limitations or restrictions on the allocation of MCCs in order to insure a broad geographic dispersal of MCCs throughout the Commonwealth of Virginia or to facilitate collaboration with other governmental entities of the Commonwealth of Virginia to increase the affordability of homeownership in Virginia.

13VAC10-190-170. MCCs not transferable.

No person to whom the authority issues an MCC may transfer his MCC to any other person.

13VAC10-190-180. Applications for MCCs.

1. Participating lenders shall forward to the authority, in the manner and procedure required by the authority, applications from borrowers applying for MCCs.

2. Except for borrowers whose loans are originated directly by the authority, the authority shall not accept applications directly from borrowers.

3. Applications for MCCs must include such forms, documents, information, and fees as the executive director may require. Such requirements may change for each program and may include documentation necessary for the authority to comply with reporting requirements imposed by the IRC, in addition to documentation necessary to determine the applicant's eligibility for an MCC. The authority may also require additional documentation and information regarding applicants that the executive director determines to be appropriate for measuring the performance of the program.

4. The authority shall review each application and, if the authority determines that the application complies with these rules and regulations and applicable federal laws, rules, and regulations, then the authority shall issue a commitment to the applicant, either directly or through the participating lender, with respect to such MCC.

5. The maximum principal amount, amortization period, and interest rate on the applicant's loan and such other terms, conditions, and requirements as the executive director deems necessary or appropriate shall be set forth in each commitment. Each commitment term shall be for a term of 60 days, except that the term may be extended for good cause in the sole discretion of the authority.

6. Based upon the application, this chapter, and all applicable federal laws, rules, and regulations, the authority shall determine whether an MCC shall be issued and shall determine the certificate credit rate and the certified indebtedness amount applicable to the MCC.

13VAC10-190-190. Issuance of an MCC.

The closing of the loan shall be consummated in accordance with the terms of the commitment. Upon receipt of such forms, documents, information, and fees as the executive director may require upon closing, the authority shall issue an MCC to the applicant. The MCC shall specify the certificate credit rate and the certified indebtedness amount and shall otherwise satisfy the requirements of 26 CFR 1.25-6T.

13VAC10-190-200. Compliance investigations.

After each MCC is issued, the authority shall have the right, but not the obligation, to investigate the facts and circumstances relating to any application and the issuance and use of the related MCC and, if there are proper grounds, to revoke the MCC and take other appropriate legal action.