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
MORTGAGE CREDIT CERTIFICATES (MCC)Financing Future Borrowers: A Panel Discussion2014 Delaware Governor’s Conference on HousingOctober 7, 2014
Stephen D. Silver, CFO
Maryland Department of Housing & Community Development
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
October 7, 2014Maryland Department of Housing and Community Development
2
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
October 7, 2014Maryland Department of Housing and Community Development
3
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
October 7, 2014Maryland Department of Housing and Community Development
4
There are other factors that will impact the size of the homeowner’s tax credits…
•Certificate Credit Rate
•Mortgage Size
•Interest Rate
October 7, 2014Maryland Department of Housing and Community Development
5
6
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
October 7, 2014Maryland Department of Housing and Community Development
7
A sample MCC calculation
October 7, 2014Maryland Department of Housing and Community Development
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
The Value of a Maryland HomeCredit
October 7, 2014Maryland Department of Housing and Community Development
8
9
Maryland HomeCredit Calculations
October 7, 2014Maryland Department of Housing and Community Development
An Excel spreadsheet is used to estimate benefit to individual borrowers:
Mortgage Credit Certificate (MCC): Homeowner Benefit Schedule 4.250% 4.625% 4.875%
MMP Loan Type Use Drop down box if this a Maryland Mortgage Program (MMP) loan. If not, leave the mortgage type blank.
Mortgage Interest Rate 4.500% Enter Mortgage Interest Rate (preferred)(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)
1st Mortgage Amount $175,000 Enter the expected First Mortgage amount
1st Mortgage Payment Date Enter the expected First Payment Date on First Mortgage; No entry will default to the beginning of the calendar year.
Monthly Principal & Interest Payments $886.70 This is a calculated field in Model based
mortgage amount and interest rate entered
MCC Credit Rate Applied to the Eligible Mortgage 25% 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.
10
Results for Maryland
•Since start, about 25% of borrowers have utilized the MMP/MCC option
•Steady growth since inception
October 7, 2014Maryland Department of Housing and Community Development
11
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%
October 7, 2014Maryland Department of Housing and Community Development
12
Questions?• Contact:
• Stephen D. Silver, CFO at [email protected]• The Maryland Mortgage Program at 1-800-638-7781
October 7, 2014Maryland Department of Housing and Community Development