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Mortgage Credit Certificate (MCC) Programs

Mortgage Credit Certificate (MCC) Programs

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Mortgage Credit Certificate (MCC) Programs

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  1. Available MCC Allocations & Jurisdictions • What is an MCC? / How does it Work? • Benefits to Homebuyer • Benefits to Participating Lenders • General Guidelines • Application & Closing Process • Other Support Services from NHF Mortgage Credit Certificate (MCC) Programs Administered by National Homebuyers Fund National Homebuyers Fund, 1215 K Street, Suite 1650, Sacramento, CA 95814 Toll-free (866) 643-4968 www.nhfloan.org Revised October 2012

  2. Available MCC Allocations & Jurisdictions • CHF MCC Program • Sponsored by CRHMFA Homebuyers Fund (CHF) • 20% MCC • 41 Counties (and City of Vacaville) • Orange County • Sponsored by County of Orange • 15% MCC This training contains general guidelines only. Please refer to www.nhfloan.org for complete program guidelines. NHF Administered MCC Programs

  3. Available MCC Allocations & Jurisdictions NHF Administered MCC Programs

  4. What is an MCC? Federal Income Tax Credit • Reduces the amount of federal income tax the homebuyer pays to the IRS • Tax Credit “effectively” reduces the rate on the mortgage loan • Reduction in income tax liability provides more available income to “qualifying” for mortgage Let’s see how it works… NHF Administered MCC Programs

  5. Table 1 Amount of Mortgage $200,000 Rate on Conventional Loan 5.00% First-Year Interest Paid $10,000 $2,000 First-Year MCC Tax Credit Federal Tax Liability (Example only) $4,000 After MCCFederal Tax Liability $2,000 What an MCC does for the homebuyer (Part 1) Example Homebuyer getting a 30-year, fixed-rate mortgage loan of $200,000 at a 5.00% interest rate will pay $10,000 in interest payments during the first year of the mortgage. • Tax Credit A “Tax Credit” entitles a taxpayer to subtract the amount of the credit from their total federal income tax liability. With a 20% MCC, up to $2,000 (20% of $10,000) of the annual mortgage interest paid can be taken as a “tax credit” toward the buyer’s federal income tax liability. The remaining $8,000 (80% of $10,000) of the annual mortgage interest payment (not claimed as a credit) may still qualify as an itemized tax deduction from the buyer’s adjusted gross income*. *Homebuyers are encouraged to consult a tax advisor regarding the impact of an MCC on their individual tax liability. NHF Administered MCC Programs

  6. Table 2 Amount of Mortgage $200,000 Rate on Conventional Loan 5.00% First-Year Interest Paid $10,000 $2,000 First-Year MCC Tax Credit After-Credit Interest Paid $8,000 “Effective”Interest Rate 4.00% What an MCC does for the homebuyer (Part 2) Same Example continued… Homebuyer getting a 30-year, fixed-rate mortgage loan of $200,000 at a 5.00% interest rate will pay $10,000 in interest payments during the first year of the mortgage. • “Effective” Rate Reduction The After-Credit interest paid on the mortgage is reduced, effectively reducing the interest rate on the mortgage loan from 5.00% to 4.00%. (Annual interest of $8,000 on $200,000 corresponds to a 4.00% interest rate.) Note: Homebuyers are encouraged to consult a tax advisor regarding the impact of an MCC on their individual tax liability. NHF Administered MCC Programs

  7. $200,000 5.00% $10,000 $2,000 $166 What an MCC does for the homebuyer (Part 3) Same Example continued… Homebuyer getting a 30-year, fixed-rate mortgage loan of $200,000 at a 5.00% interest rate will pay $10,000 in interest payments during the first year of the mortgage. • MCC Credit Can Help Homebuyer Qualify for Mortgage Because the Homebuyer would be entitled to the $2,000 tax credit in the first year, he/she would be able to file, in advance, a revised W-4 withholding form taking into consideration this tax credit and have approximately $166 per month in additional disposable income($2,000/12 months). The Lender can take this into consideration when qualifying the homebuyer, effectively “grossing-up” their available income for qualifying purposes. Table 3 Amount of Mortgage Rate on Conventional Loan First-Year Interest Paid First-Year MCC Tax Credit MCC Tax Credit (monthly amount) Note: Homebuyers are encouraged to consult a tax advisor regarding the impact of an MCC on their individual tax liability. NHF Administered MCC Programs

  8. MCC Eligibility Guidelines • Purchase of Primary Residence Only • First-time Homebuyer Requirement • Waived in “Targeted Area” Census Tracts • Qualifying Loan Types • Conventional, FHA, VA, USDA, Fannie Mae, Freddie Mac • Fixed-rate or Adjustable Rates • Tax-Exempt Mortgage Revenue Bond Loans are Not Eligible NOTE: An MCC can be combined with the CHF ACCESS Program or CHF Platinum Program which provide downpayment assistance • Qualifying Properties • Single-Family (detached and condos) • Townhouses or Certain Manufactured Homes • 2-unit, 3-unit and 4-unit (with certain restrictions) NHF Administered MCC Programs

  9. MCC with Platinum Program Homebuyer applying for a 30-year FHA mortgage loan of $164,050 with a fixed interest rate of 4.00% and a CHF Grant sized at 3% of the 1st mortgage amount. *Scenario above is for example purposes only. NHF Administered MCC Programs

  10. Example from NHF website Guidelines found on Program Overview (Fact Sheet) Items Below are Specific to Each Allocation and Located in the Program Overview: • Eligible Loan Area • Allocation Amount • MCC Start/End Date • MCC Credit % • Purchase Price Limits • Income Limits • Targeted Area Census Tracts • Program Fees NHF Administered MCC Programs

  11. Choose Program from Program Index Participant Guide page (specific to each Program) MCC Program Manual Program Overview (Fact Sheet) Forms and Application/Closing Checklists Participation Packet (guidelines for Lender participation) Training Calendar (online training) Marketing Support (brochures, flyers for Lenders to use) Online Reservation System Lender Participation Guidelines Complete NHF Lender Profile Sign Program Lender Agreement Attend a Training Session Your Lender Resource Center – www.nhfloan.org NHF Administered MCC Programs

  12. The MCC Federal Recapture Tax Recapture Tax would only occur if and when ALL of the following occur: • Property is sold within the first nine (9) years; • There is a capital gain upon sale; and • Homebuyer’s income exceeds the allowable income limit in the year in which the property is sold. The tax will be the lesser of: • Half the gain from the sale of the home, or • A tax based on a formula (See MCC-010 Recapture Tax Notice) NHF Administered MCC Programs

  13. The MCC Federal Recapture Tax Example EXAMPLE: Based on $164050 First Loan, 30-year amortization and 4% fixed interest rate. NHF Administered MCC Programs

  14. HOMEBUYER MCC reduces the amount of federal tax liability Tax credit is a dollar-for-dollar reduction of their federal tax bill MCC can be used to “gross-up” income to assist with qualifying for mortgage LENDER Ability to offer potential homebuyer the benefit of a tax credit MCC can be combined with standard mortgage products Can help to qualify borrower MCC product may increase sales/loans Review of Advantages NHF Administered MCC Programs

  15. Marketing Literature • PDF template format • Flyer and brochure • Just add your company info, logo, phone #, etc. • Marketing guidelines apply (published in the Participant Guide) • Represent the program accurately NHF Administered MCC Programs

  16. FMC guideline overlays FMC Process Flow Fmc overlays & process flow NHF Administered MCC Programs

  17. FMC Guideline Overlays • Minimum Fico Score – 660 • Minimum Two (2) Months Reserves required • AUS approvals only • NO manual underwriting allowed • NO Non-Occupant Co-borrowers • NO Co-Signers • Gift Funds OK • Owner Occupied only Note: We will not gross up income with MCC funds – can only use it to qualify borrower. NHF Administered MCC Programs

  18. MCC Application & Underwriting Process (RETAIL) • LO has Homebuyer apply for MCC • Explains MCC to Borrower • Determine Borrower’s Preliminary Eligibility for MCC (Income, purchase price, first-time homebuyer requirement, etc.) • Start MCC Application simultaneously with Mortgage Loan application • LO discloses the MCC Application Fee • FMC will collect the fee at funding/closing • LO/Branch Collects Required Documentation • See MCC-002 Application Checklist • LO/Branch Reserves MCC Funds Online at www.nhfloan.org • Must have an active purchase contract NHF Administered MCC Programs

  19. Timeline <120 days <3 Days <3 Days <30 Days Reservation Confirmation Application PackageDue NHF Reviews &Issues Commitment (upon approval) EscrowCloses ClosingPackageDue MCC Application and Underwriting Process cont… (RETAIL) • LO/Branch Submits Application Package to NHF • Within 3 business days (of Reservation Confirmation Date) • NHF Reviews MCC Application Package • NHF Issues MCC Commitment (upon approval) • Commitment Expiration is the sooner of: • 30th calendar day after Close of Escrow; • 120 days from issuance of the MCC Commitment; or • The end of the Program Period. • LO/Branch submits file with all documentation including MCC Commitment to UW for loan approval NHF Administered MCC Programs

  20. MCC Application & Underwriting Process (WHOLESALE) • Broker has Homebuyer apply for MCC • Explains MCC to Borrower • Determine Borrower’s Preliminary Eligibility for MCC (Income, purchase price, first-time homebuyer requirement, etc.) • Start MCC Application simultaneously with Mortgage Loan application • Broker discloses the MCC Application Fee • FMC will collect the fee at funding/closing • Broker submits file to FMC Wholesale Branch for reservation • FMC Wholesale Branch Reserves MCC Funds Online at www.nhfloan.org • Must have an active purchase contract NHF Administered MCC Programs

  21. Timeline <120 days <3 Days <3 Days <30 Days Reservation Confirmation Application PackageDue NHF Reviews &Issues Commitment (upon approval) EscrowCloses ClosingPackageDue MCC Application and Underwriting Process cont… (RETAIL) • FMC Wholesale Branch Submits Application Package to NHF • Within 3 business days (of Reservation Confirmation Date) • NHF Reviews MCC Application Package • NHF Issues MCC Commitment (upon approval) • Commitment Expiration is the sooner of: • 30th calendar day after Close of Escrow; • 120 days from issuance of the MCC Commitment; or • The end of the Program Period. • FMC Wholesale Branch submits file with all documentation including MCC Commitment to UW for loan approval NHF Administered MCC Programs

  22. MCC 002 – MCC Application Checklist • MCC-003 Application and Affidavit • MCC-004 Seller Affidavit • Reservation Confirmation - Comes with reservation • MCC Application Fee (Disclose Fee upfront, FMC will collect it at funding) • Loan Application (1003) • Purchase Contract • Tax Returns – for last 3 years • Veteran’s Discharge Papers (if applicable) • Supporting Income Documentation • Rental Verification NHF Administered MCC Programs

  23. Loan Closing Procedures • FMC Branch (Wholesale/Retail) forwards MCC Closing Documents to Doc Department with Doc form to send with docs to Escrow for Signature • See MCC-007 Closing Package Checklist for documentsthat must be signed/collected at closing • FMC closes loans and collects MCC Fee • FMC Submits MCC Closing Package to NHF • Including Application Fee • NHF Reviews MCC Closing Package • NHF Issue MCC Certificate (upon approval) • Certificate sent directly to Borrower • Copy sent to Lender NHF Administered MCC Programs

  24. MCC-007 MCC Closing Package Checklist • MCC-004 Seller Affidavit • MCC-008 Borrower’s Closing Affidavit • MCC-009 Lender’s Closing Certificate • MCC-010 Recapture Tax Notice • MCC Application Fee • Mortgage Note • HUD-1 Statement (Must be a Certified Copy) NHF Administered MCC Programs

  25. Thank You for Joining Us Today 1215 K Street, Suite 1650 Sacramento, CA 95814 (866) 643-4968 www.nhfloan.org NHF Administered MCC Programs