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

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, 2014 Maryland 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, 2014 Maryland 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, 2014 Maryland 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, 2014 Maryland Department of Housing and Community Development 5

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, 2014 Maryland Department of Housing and Community Development 6

A sample MCC calculation October 7, 2014 Maryland Department of Housing and Community Development 7 Mortgage Amount$200,000 Interest Rate4.25% Interest Paid$8,435 MCC Credit Rate25% Eligible Credit Amount$2,000 Itemized Deduction Amount$6,435

The Value of a Maryland HomeCredit October 7, 2014 Maryland Department of Housing and Community Development 8

Maryland HomeCredit Calculations October 7, 2014 Maryland Department of Housing and Community Development 9 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 $ 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.

Results for Maryland Since start, about 25% of borrowers have utilized the MMP/MCC option Steady growth since inception October 7, 2014 Maryland Department of Housing and Community Development 10

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, 2014 Maryland Department of Housing and Community Development 11

Questions? Contact: Stephen D. Silver, CFO at The Maryland Mortgage Program at October 7, 2014 Maryland Department of Housing and Community Development 12