IRS releases guidance on tax-exempt bond provisions in the 2008 Housing Act

Recently released IRS guidance on the tax-exempt bond and low-income housing credit provisions of the Housing Tax Assistance Act of 2008 (2008 Housing Act) also address the refinancing of subprime loans. Additionally, the guidance focuses on the temporary increase to the private activity bond volume cap for housing bonds, the exclusion for military housing allowances, the new authority of the Federal Home Loan Banks to guarantee tax-exempt bonds, and the reporting of the volume cap by bond issuers.

Comment. Tax-exempt housing bonds issued by state and local governments fund the acquisition, construction and rehabilitation of affordable housing. The interest earned by the bondholder is exempt from federal tax.

Subprime loan refinancing

The 2008 Housing Act's tax-exempt bond provisions provide help for homeowners trapped in subprime mortgages who want to refinance. The new law temporarily expands the mortgage revenue bond program to allow the refinancing of qualified existing subprime mortgages. The IRS's guidance provides that bond issuers may make a "reasonable estimates made in good faith" when determining whether not refinancing a subprime borrower's mortgage would cause him or her "financial hardship."

The guidance also addresses the time in which a bond issuer may make proceeds of such bonds available for use of qualified subprime loan refinancings.

Additional guidance

Under the 2008 Housing Act, housing bonds need to be issued under the additional volume cap before the end of 2010. The IRS's guidance addresses when funds obtained under the additional cap must be used, the informational reporting and forms required to be reported to the IRS, as well as the use and carryforward of unused volume caps.

(Notice 2008-79)