1. Mortgage Credit Certificate (MCC) Program Manual Available at:
Welcome to Mortgage Credit Certificate MCC Training. The manual is located at the Website shown on this Powerpoint presentation along with our other manuals for the House Key program and down payment assistance.
So what is an MCC? Some of you may even remember the MCC Program because the Commission offered it in the past.
The MCC Program, like our House Key first mortgage product uses mortgage revenue bonds. It is a federal program.
We currently have a small allocation available. Once the program has been fully allocated, we will not be offering it again this year.
We retooled this program to help borrowers who may not be able to be currently assisted by the House Key State Bond program.

2. The MCC is a federal income tax credit
The MCC is a federal income tax credit. With the MCC, the qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage in the form of a special tax credit.
The MCC operates as a federal income tax credit and reduces the federal income taxes of eligible homebuyers, unlike a tax deduction which reduces taxable income.
With the MCC, the qualified homebuyer is eligible to reduce their federal tax liability equal to a portion of the annual interest paid on their mortgage in the form of a special tax credit.
.Our program offers a 20% credit.

3. How the MCC Program Works
A qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage as a special tax credit.
The amount of the credit is equal to 20% credit rate on the MCC multiplied by the annual interest paid.
The lender takes into consideration the effect of the MCC when determining the total amount of household income available for the monthly housing payment.
All potential applicants should contact a qualified tax preparer.
So, how does the MCC work? Simply put, without it the homebuyer is going to send more tax dollars to the IRS.
With the MCC the qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage as a special tax credit.
The amount of the credit is equal to 20% credit rate on the MCC multiplied by the annual interest paid. This credit reduces the federal income taxes of the buyer, resulting in an increase in the buyer's net earnings or take home pay.
In effect, they have more disposable income – not more gross income – more disposable, or net, income. This additional income may be used to qualify and to pay a higher mortgage payment.
The MCC has the potential of saving the MCC holder several thousands of dollars over the life of the loan.
Another slide will show you some examples of how this works.
The feasibility of the MCC Program and the degree to which it can provide housing assistance is totally dependent upon the extent to which the homebuyer has federal tax liability that can be offset by the MCC tax credit.
Typically, higher income homebuyers with few deductions or credits are generally the best able to use the MCC tax credit as a form of housing assistance because they have sufficient federal tax liability.
The homebuyer should consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis.
The homebuyer may file a new W-4 form with his or her employer reflecting the MCC credit savings.
By taking this action to reduce the amount of taxes withheld it increases the buyer's take home pay.
If the amount of MCC credit exceeds the MCC holder's tax liability reduced by any other personal credits for the tax year, the unused portion of the credit can be carried forward over the next three tax years or until used, whichever comes first.
At loan underwriting, the lender takes into consideration the effect of the MCC when determining the total amount of household income available for the monthly housing payment which Noreen will go into later on in this training.
The Commission is only responsible for compliance with IRS rules and Commission guidelines. We do not determine whether a particular applicant will benefit from the MCC. You are responsible for determining the amount of credit, but like the Commission, not whether an applicant will benefit from the credit.
We recommend you tell all potential applicants that they contact a qualified tax preparer in order to determine the potential benefits the MCC may provide for their particular tax situation.

4. Value of a Tax Credit vs. Tax Deduction
$200,000 mortgage x 6% interest = $12,000 annual interest
$12,000 times 20% credit = $2,400
w/MCC w/o MCC Tax Credit
Tax Credit Tax Deduction
Total Income (married, joint filing) $60, $60,000
Standard Deduction (9,700) (- 0 -)
Itemized Interest (- 0 -) (12,000)
Exemptions (2) (6,200) (6,200)
Total Taxable Income $44, $41,800
Federal Income Tax Liability , $5,559
MCC Credit (2,400) (- 0 -)
Taxes Paid $ 3, $ 5,559
This slide shows the value of a tax credit verses a tax deduction.
A tax credit entitles taxpayers to subtract the amount of the credit from their total federal income tax liability, receiving a dollar for dollar savings.
On the other hand, a tax deduction is subtracted from the adjusted gross income before federal income taxes are computed.
Therefore, with a deduction, only a percentage of the amount deducted is realized in savings. These examples illustrate how a credit is considerably more valuable than a deduction.
Under the set of numbers labeled “with MCC Tax Credit”, we have a married couple, filing joint income taxes. They have a $200,000 mortgage at a 6% interest rate.
The annual interest they pay is $12,000 and the MCC credit at 20% amounts to $2,400 a year.
They earn $60,000 a year.
In this scenario, they take the standard deduction of $9,700 rather than itemize the remaining 80% of mortgage interest at $9,600.
They also take two exemptions for $6,200. Their total taxable income liability is $44, With the MCC tax credit of $2,400, their actual taxes paid is $3,504.
The second column labeled without ”MCC Tax Credit” the married couple filing a joint return is taking the $12,000 interest paid as a tax deduction along with the $6,200 for two exemptions.
Their total taxable income is $41,800. And, on this amount they will pay $5,559 in federal income taxes.
So, you can see that the MCC reduces the amount of federal income taxes otherwise due to the federal government from the homebuyer.
The IRS will not pay out more than should have been paid in. Therefore, the benefit to the home owner in any one year cannot exceed the amount of federal taxes owed for that year, after consideration of other credits and deductions.
Also, it is important for the homebuyer to know that the amount of the credit will decrease over the life of the loan as the interest is paid down.

5. $2,400 Annual Credit/12 = $200 per month
Effective Interest Rate
$200,000 Loan Amount
$2,400 Annual Credit/12 = $200 per month
MCC
No MCC
Interest Rate
6.0%
Term
30 years
Monthly P & I
$1,199
MCC Rate
20%
Monthly Credit
$200
“Effective” P & I
$999 NA
Effective Interest
4.38%
Here’s another way to look at the effect of the MCC. This slide shows how the borrower’s interest rate of 6% on a $200,000 loan amount is effectively an interest rate of 4.38%, after taking into consideration the MCC and the effect on the borrower’s monthly payment.
This becomes more meaningful as interest rates rise.
[Dianne Wasson’s handout ]

6. BENEFITS Homebuyer Tax Credit is more valuable than a deduction
Can still deduct remaining 80% of interest paid
Increases homebuyer’s take home pay - file amended W-4
Can qualify for a larger mortgage loan
$200 monthly benefit = $33,358 of additional loan funds
Valid for the life of the loan, as long as the borrower remains owner-occupant of the residence
Credit may be reissued after refinancing
One-time fee of $650
Unused credit carry-forward up to 3 years
For the homebuyer, as we showed you in an earlier slide, the tax credit is more valuable than a deduction.
The homebuyer can still deduct the remaining 80% of the mortgage interest they paid.
It increases the homebuyer’s take home pay when they file an amended W-4.
This increases the homebuyer’s capacity to qualify for a mortgage loan. The $200 monthly benefit talked about earlier translates into $33,358 of additional loan funds for the purchase of a home.
The MCC is valid for the life of the loan, as long as the borrower remains the owner-occupant of the residence
The credit may be reissued after refinancing under certain circumstances.
There is only a one-time fee of $650. If, in the example we have been using where the MCC applicant gets a $2,400 credit for the first years’ interest, they have already covered the MCC fee. This fee is nonrefundable, so be certain that your buyer is going to qualify for the MCC credit.
Any unused credit may be carried forward for up to 3 years.

7. Lenders Any loan officer is eligible to offer the program.
Bank funding the loan must sign a participation agreement prior to participating.
Loans can be brokered to a participating lender or sold on a correspondent basis. Please check with a participating lender prior to proceeding.
Uses lender’s first mortgage product including FHA, VA, Fannie Mae, Freddie Mac, and all loan types listed on page 2.1 of House Key manual.
Additional revenue for lenders
Any loan officer is eligible to offer the program. The lender ultimately servicing the loan is required to sign the MCC participation agreement and pays a $500 fee to participate prior to offering the MCC program. Loans can be brokered to a participating lender or sold on a correspondent basis. Please check with a participating lender prior to proceeding. Current participating lenders are listed on the Commission’s Website.
The lenders use their own first mortgage type. The Commission does not dictate the interest rate. We only issue the MCC. The lenders use their own first mortgage product, so their fees are not limited as with the House Key Program. However, MCC applicants may not be charged more than the reasonable fees as would be charged to a borrower applying for a mortgage not provided in connection with the MCC. Participant Lenders may charge up to a $100 MCC processing fee at closing.
Participant Lenders will establish all underwriting criteria, including interest rate, down payment requirement, term, fees, points, and closing costs based on the mortgage loan type.

8. Income Limits Maximum Annual Household Income Limits
Non-Targeted Targeted
County persons 3+ persons 1-2 persons 3+ persons
Island $75, $87,000 $90, $95,000
Pierce/San Juan $75, $87, $75, $87,000
King/Snohomish $90, $97,000 $90, $97,000
All Other Counties $65, $75,000 $75, $75,000
This program has maximum income limits are shown above. The household income needs to be below the income limit for the county they are purchasing in order to qualify for the program. In some counties, the targeted areas have higher income limits. Please see Section 4 of the House Key manual for more information on target areas.

9. Eligible Borrowers WSHFC IRS Tax Code Compliance: Owner Occupancy
First Time Homebuyer
See section 3 of House Key manual for further information
Similar to the House Key State bond program, there is an occupancy Requirement- the residence must be owner-occupied,
Per federal guidelines, the MCC is valid for the life of the loan, so long as the homebuyer remains the owner-occupant of the residence.
They borrower needs to be a first time homebuyer unless they purchase in a target area.
We will need 3 years tax returns to verify first time homebuyer status
WSHFC

10. Household Size
Includes all occupants who reside in the household including children, significant others, roommates, etc.
When we talk about IRS compliance and calculation of income, it is important that we define the household size. Household size includes all person who will reside in the residence.
Household size includes non-borrowing co-habitants such as roommates that will reside in the single family residence.
It also includes persons who are full time household occupants regardless of age which can include a child, parent, significant other, children away at school and who live at home during recess.
Household size does not include dependents that are claimed on tax returns , but will not permanently reside in the home. Examples include children who may live with non-custodial parent on weekends or a child who goes away to school and does not go home during breaks.
WSHFC

11. Income Calculation WSHFC
You must include income from all persons 18 years of age and over who will be residing in the home.
Non Occupant Co-signers are not allowed.
You must include income from all persons 18 years of age and over who will be residing in the home.
If someone buys a home and has a roommate over 18, we include the roommate’s income regardless if they are on the note and deed of trust for the 1st mortgage.
Calculating income for the MCC Program is exactly the same as you would calculate for the House Key state bond program and is different from the way you normally calculate it for credit underwriting. These are two separate pieces -credit underwriting and compliance.
The co-signer policy is on page 3.8. Non-occupant co-signers are not allowed.
WSHFC

12. Annualized Income
Future Projected Income for one year following loan closing (anticipated income)
Includes ALL sources of income
Includes raises
See Section 3 of House Key manual.
We use future projected income for one year folllowing loan closing (anticipated income). We include income from ALL sources. Since we use future income in our calculations, we will also include future raises.
Please see Section 3 of House Key manual for detailed information on calculating income or call the Homeownership Division for assistance.

13. Acquisition Cost Limits
Maximum acquisition cost limits of a single-family residence must not exceed the following:
County Non-Targeted Targeted
Clark/Island $330,000 $360,000
Jefferson/Pierce/Snohomish $370,000 $395,000
King/San Juan $450,000 $475,000
Kitsap/Whatcom $300,000 $335,000
Skagit $285, N/A
All other counties $270,000 $290,000
There are also maximum acquisition cost limits.
Eligible properties are single-family existing or new construction homes, manufactured homes – that can also be on leased land, and homes located on Native American trust land
Acquisition Costs - may be different from the house price and different from the lending definition - “includes the total purchase price of the home plus any additional expenses assumed by the borrower or others which are not typical borrower costs or fees”. For example, if an appraisal repair is paid for by anyone other than the seller, you must include it as part of acquisition cost. There are other examples in your manual on page 4.2.

14. Property Requirements
The property cannot contain more than one self-sufficient unit
Cannot have more than one service meter supporting the entire property
Cannot have excess land value - less than two acres
No more than 15% of the residence may be used for trade or business purposes
See Section 4 of House Key manual
The property cannot contain more than one self-sufficient unit, have more than one service meter supporting the entire property, have excess land value – less than two acres.
We will ask for a copy of the appraisal to document this or other documentation if an appraisal is not required.
Per federal guidelines, no more than 15% of the residence may be used for trade or business purposes
Business use limited to 15% of square footage and 10% of total income if used for a child care business.
If the property is a manufactured home, it must have a minimum of 400 square feet of living space and a minimum width in excess of 102 inches and which is of a kind customarily used at a fixed location.

15. Homebuyer Education WSHFC
All borrowers on the note and deed of trust must attend a Commission sponsored homebuyer education seminar prior to reservation of MCC.
All MCC borrowers listed on the note and deed of trust need to complete a Commission sponsored homebuyer education course prior to the reservation of MCC funds.
The Commission publishes our homebuyer education schedule on our Web-site:
WSHFC

16. First Mortgage Guidelines
MCCs are available with all loan types listed on page 2.1 of the House Key manual. They are also available with fixed or adjustable rate conventional conforming (i.e., Fannie Mae or Freddie Mac saleable), FHA, VA, or Rural Development mortgages.
MCCs NOT available if the first mortgage is a House Key loan.
Lenders will establish all underwriting criteria, including interest rate, down payment requirement, term, fees, points, and closing costs based on the mortgage loan type.
Participant Lenders may charge up to a $100 MCC processing fee at closing.
MCCs are available with all loan types listed on page 2.1 of the House Key manual. They are also available with fixed or adjustable rate conventional conforming (i.e., Fannie Mae or Freddie Mac saleable), FHA, VA, or Rural Development mortgages. The full MyCommunityMortgage suite of products is included including the 40 year mortgage and interest only products. .
The Commission’s House Key State Bond first mortgage program is NOT available for use with the MCC Program.
The Commission does not want to link an MCC with financing that is considered “high risk” by today’s standards. So, certain loan types are prohibited for use with the MCC Program. These loan products are NOT permitted for use with an MCC: Stated income loans
Portfolio loans
Interest only loans (with the exception of MyCommunityMortgage)
Lenders will establish all underwriting criteria, including interest rate, down payment requirement, term, fees, points, and closing costs based on the mortgage loan type. However, by federal law MCC applicants may not be charged more than the reasonable fees as would be charged to a borrower applying for a mortgage not provided in connection with the MCC. Participant Lenders may charge up to a $100 MCC processing fee at closing.
The Participant Lender performs the mortgage processing and underwriting procedures in the normal manner for the applicable type of loan. The MCC operates as a federal tax credit reducing the federal income taxes of eligible homebuyers purchasing a qualified residence, thereby making more funds available for the house payment.
The Participant Lender may consider the benefits of the MCC when determining the amount of income available for the monthly housing payment and debt ratios by adding the MCC benefit to the MCC applicant’s gross income. If the MCC applicant is receiving an FHA loan, the benefit may be used to directly offset the mortgage payment before calculating the qualifying ratios.

17. Please see Section 5 of House Key manual.
Recapture Tax
The recapture tax provision applies.
ALL Three Things Must Happen :
Sell - 9 Years
Net Capital Gain
Income Over Federal Limit
Please see Section 5 of House Key manual.
The IRS recapture tax provision requires certain borrowers to repay the government (federal, not state) a portion of their gain on the sale of the home if it was financed through the proceeds of a tax-exempt bond, like our House Key first mortgages, or the taxpayer received any credit allowed under section 25 of the IRS Code (relating to interest on certain home mortgages). Please see section 5 of the House Key manual for further explanation.
WSHFC

18. Recapture Forms Borrower signs:
Application - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.5)
Closing - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.8)
The borrower completes IRS form8828 when they file their taxes for the year
in which they sell their home. It is used to calculate any recapture tax that may be due. (form is an IRS form and is not in the manual)
The Internal Revenue Service requires that the Participant Lender:
Has a basic understanding of the recapture tax and explains it to the MCC applicant before collecting the MCC fee from the MCC applicant.
Has the MCC applicant sign the form entitled "Application Recapture Provision Notice of Potential Recapture Tax on Sale of Home.” This form is then included in the MCC Application Package submitted to the Commission.
Has the MCC applicant sign the form entitled "Closing Recapture Provision Notice of Potential Recapture Tax on Sale of Home.” This form is then included in the MCC Application Package submitted to the Commission.
In an effort to clearly and adequately explain the recapture tax, the Commission sends a form tailored to reflect the particular loan amount and income thresholds which pertain to individual MCC Holders. The Commission forwards it to the MCC Holder with the Mortgage Credit Certificate after loan closing.
(See also Section 5 “Recapture Tax” of the House Key State Bond Program Manual for additional information on the potential for recapture tax.)
If the borrower does not receive an MCC, the Notice of Cancellation of Recapture Tax must be sent.

19. Steps!
Step 1 Borrower completes a Commission sponsored homebuyer education seminar
Step 2 Buyer and Seller to sign and execute purchase and sale agreement
Step 3 Borrower makes application with a loan originator
Additional forms/items needed at loan application:
Homebuyer Education certificate for each borrower that will be on the loan
Tax returns for prior three years
Recent pay stubs within 45 days of closing
Notice of MCC Fee Guidelines (MCC13.3)
Notice of Potential Benefits Provided by a Mortgage Credit Certificate (MCC13.4)
Application Recapture Provision (MCC13.5)
Mortgagor Affidavit (MCC13.6)
MCC Tax Credit Worksheet (MCC13.1)
Step 4 Loan originator to reserve MCC allocation on line or using Reservation Form (MCC13.9) if sending to another lender on broker or correspondent basis

20. Steps!
Step 5 Process/underwrite mortgage loan according to first mortgage guidelines
Submit Pre-Closing Checklist (MCC13.2) for preliminary compliance review and approval
Step 6 Close mortgage loan and wire $650 MCC Fee to Commission
Additional forms/items needed at loan closing:
Seller Affidavit (MCC13.7)
Closing Recapture Provision (MCC13.8)
Re-executed Mortgagor Affidavit (MCC13.6), if necessary
Step 7 Send MCC Post Closing Checklist (MCC 13.13) and required documents to the Commission
Step 8 If approved, the Commission will deliver original MCC to MCC Holder and send a copy to the Participant Lender

21. Use of the MCC
The MCC holder should consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis.
The MCC holder may file a new W-4 form with his or her employer reflecting the MCC credit savings.
A letter will be sent to the MCC holder with the Mortgage Credit Certificate explaining how to claim the MCC.
The MCC holder should consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis. The MCC holder may file a new W-4 form with his or her employer reflecting the MCC credit savings. By taking this action, the number of exemptions will increase, reducing the amount of taxes withheld and increasing the MCC holder's disposable net income (take-home pay). It is important for the MCC holder to know that the amount of the credit will decrease over the life of the loan as the interest is paid down.
If the amount of MCC credit exceeds the MCC holder's tax liability reduced by any other personal credits for the tax year, the unused portion of the credit can be carried forward to the next three tax years or until used, whichever comes first. The MCC holder will have to keep track of the unused credit each year. The current year credit is applied first and then the oldest amount of unused credit applied next.
A letter will be sent to the MCC holder with the Mortgage Credit Certificate explaining how to claim the MCC. The MCC holder will need to utilize the appropriate form (IRS form 8396) each year in order to receive the credit.
Applicants should be strongly encouraged to consult a qualified tax preparer if they need assistance completing their federal tax returns and claiming the MCC tax credit.
The MCC is not assumable, but may be reissued should the MCC holder refinance the original mortgage loan.

22. MCC Reissuance WSHFC We can reissue under certain circumstances:
The reissued MCC must be completed within one year of refinance;
The reissued MCC must be for the same residence as listed on the MCC;
The reissued MCC replaces the existing certificate;
The certified mortgage amount on the reissued MCC doesn’t exceed the outstanding balance of the mortgage amount prior to refinancing. MCC holders may refinance for an increased mortgage amount but will only receive the MCC credit to interest incurred from the existing balance of the original mortgage;
The reissued certificate credit rate cannot exceed the certificate credit rate specified in the existing Certificate; and
The reissued MCC does not result in an increase in the credit in any taxable year.
A $ non-refundable application fee must be included in a reissuance request.
We can reissue under certain circumstances:
The reissued MCC must be completed within one year of refinance;
The reissued MCC must be for the same residence as listed on the MCC;
The reissued MCC replaces the existing certificate;
The certified mortgage amount on the reissued MCC doesn’t exceed the outstanding balance of the mortgage amount prior to refinancing. MCC holders may refinance for an increased mortgage amount but will only receive the MCC credit to interest incurred from the existing balance of the original mortgage;
The reissued certificate credit rate cannot exceed the certificate credit rate specified in the existing Certificate; and
The reissued MCC does not result in an increase in the credit in any taxable year.
A $ non-refundable application fee must be included in a reissuance request.
WSHFC

23. Participant Lender Reporting
Participant Lenders shall file an annual report with the Internal Revenue Service on IRS Form 8329
Participant Lender shall retain on its books, records and have available a summary of loans which includes the following information for 6 years:
The name, address, and Social Security number of each MCC holder.
The name, address, and federal taxpayer identification number ( ) of the Commission.
The date the loan was closed, the date the MCC was issued, the certified indebtedness amount, the credit rate under the MCC, and the amount of MCC issued.
Participant Lenders are subject to the penalty provisions of Section 6709(c) of the Code. These provisions apply to the failure of Participant Lenders to file IRS Form 8329 and shall survive the termination of this MCC Program or any resignation of the Participant Lender.
Participant Lenders shall file an annual report with the Internal Revenue Service on IRS Form 8329 (or such other form as may be designated by law or regulation) during the period that MCCs are being issued by the Commission. This Form 8329 must be filed on or before January 31st of the year following the calendar year to which the report relates. A copy of the annual report shall be provided to the Commission.
Our Mitas system has a reporting component to assist you with the reports, but it is your responsibility to send it to the IRS.
For six years following the year in which a loan for which the Commission issued the MCC was made, the Participant Lender shall retain on its books, records and have available a summary of loans which includes the following information:
The name, address, and Social Security number of each MCC holder.
The name, address, and federal taxpayer identification number ( ) of the Commission.
The date the loan was closed, the date the MCC was issued, the certified indebtedness amount, the credit rate under the MCC, and the amount of MCC issued.
Participant Lenders are subject to the penalty provisions of Section 6709(c) of the Code. These provisions apply to the failure of Participant Lenders to file IRS Form 8329 and shall survive the termination of this MCC Program or any resignation of the Participant Lender.

24. How Do I Become a Participant Lender?
All loan originators are eligible to offer MCCs to their borrowers.
The lender approving and funding the loan is required to sign the MCC Participation Agreement prior to offering the MCC program to customers located at
The agreement details the Participant Lender’s responsibilities, including reports provided to the IRS.
There is a $500 participation fee.
All loan originators are eligible to offer MCCs to their borrowers. The lender approving and funding the loan is required to sign the MCC Participation Agreement prior to offering the MCC program to customers. The agreement details the Participant Lender’s responsibilities, including reports provided to the IRS. There is a $500 participation fee.
. The agreement is available on our Website in PDF format. Signed agreements should be send to the Commission for our executive director’s signature.

25. Where is the MCC Program Manual Located?
Our program manual and forms are all located on our website as shown on this screen.