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The Homeownership Department

Mortgage Credit Certificate (MCC)


Procedural Guide
Revised February, 2010

The Illinois Housing Development Authority


401 N. Michigan Avenue
Suite 700
Chicago, IL 60611
1-877-456-2656
www.ihda.org

December, 2010

Welcome to the Illinois Housing Development Authoritys Mortgage Credit Certificate


(MCC) Procedural Guide. This Guide is designed to assist you in offering MCCS to
qualifying borrowers.
Should you have questions or need clarification on anything contained in this Guide,
please feel free to contact an IHDA representative:
Manager:
Keith Pryor

312-836-7348

Homeownership Loan Officers:


Linda Benson
312-836-5249
Allison Crane
312-836-8561
Dorothy Peppers 312-836-5229
Patricia Temske 312-836-5233

kpryor@ihda.org

lbenson@ihda.org
acrane@ihda.org
dpeppers@ihda.org
ptemske@ihda.org

The procedures contained herein are subject to change, so please consult the IHDA
website (www.ihda.org) on a regular basis or call an IHDA Homeownership Loan Officer.
For a detailed description of Tax Code Compliance Underwriting, please refer to the
2010 Home Start Procedural Guide which can be found on IHDAs website.
Thank you for participating in IHDAs Mortgage Credit Certificate (MCC) Program! We
are very excited to offer this benefit to your clients.

Tara Pavlik
Director of Homeownership
Operations and Originations
312-836-5204
Tpavlik@ihda.org

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ILLINOIS HOUSING DEVELOPMENT AUTHORITY:


The Illinois Housing Development Authority (IHDA) is a self-supporting state agency that
finances the creation and the preservation of affordable housing throughout Illinois to
increase the supply of decent and safe places for people of low or moderate means to
live. IHDA accomplishes its mission through a number of federal and state funding
sources. IHDA is also a bonding authority and independently sells bonds, based on its
own good credit, to finance affordable housing in Illinois. Since its creation in 1967,
IHDA has allocated more than $9.67 billion and financed more than 204,000 affordable
units across the state.

THE ILLINOIS MORTGAGE CREDIT CERTIFICATE (MCC) PROGRAM:


The Illinois Mortgage Credit Certificate (MCC) Program is another method of providing
financial assistance to first-time homebuyers. A Mortgage Credit Certificate creates an
income tax deduction that reduces a household's federal income tax liability and allows
the household to have more available income to make mortgage payments. The MCC
Program is available in limited communities across the State. Please visit IHDAs
website at www.ihda.org for a list of communities with MCC programs.
The Statewide Veterans MCC Program is available throughout the State and is open to
Veterans and active service personnel. Veterans and their spouses do not have to be
first-time homebuyers to be eligible. National Guard and Enlisted Reserves are eligible if
they have been federally activated to duty for reasons other than natural disasters or
domestic civil disturbances.

HOW DOES THE MORTGAGE CREDIT WORK?


Homebuyers who qualify for the program receive a Mortgage Credit Certificate from
IHDA, which can be used to reduce their household's tax burden every year for the life
of their mortgage loan. With an MCC, a percentage of what the homeowner pays in
mortgage interest (usually 20 percent) becomes a tax credit that can be deducted
dollar-for-dollar from his/her income tax liability. The remaining 80 percent of the
mortgage interest continues to qualify as an itemized tax deduction, as long as the
homeowner has sufficient tax liability. The MCC Program cannot be used in conjunction
with IHDAs Smart Move Program or any other Mortgage Revenue Bond-financed loan
product.

HOW BIG WILL THE TAX CREDIT BE?


The percentage of the annual tax credit is usually 20 percent.

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HOW IS THE MORTGAGE CREDIT CALCULATED?


Example: A homeowner pays $5,360* in interest on his/her home during the first year.
The homeowner can claim 20 percent of the interest, or $1,072, as a direct tax credit;
meaning he/she will free up $1,072 to help make his/her loan payments. The tax
credit, however, cannot be larger than the homeowners annual federal income tax
liability after deductions, exemptions, and other credits; meaning that the homeowner
cannot receive a $1,072 tax credit if he/she does not owe at least $1,072 in taxes.
*$5,360 is approximately what a homeowner would owe in interest during the first 12
months on a $90,000 fixed-rate mortgage at 6 percent interest.

HOW LONG CAN THE HOMEOWNER CLAIM THE MCC?


The MCC is good up to thirty (30) years so long as the home remains the buyers
principal residence.

WHAT LOAN TYPES CAN BE USED WITH AN MCC?


To be eligible for an MCC, the loan must be a new mortgage loan. A borrower cannot
obtain an MCC if they are refinancing an existing mortgage loan. An MCC can be used in
conjunction with any loan product such as: conventional fixed rate or adjustable rate
loans; FHA; VA; USDA-RD; or, a privately insured mortgage loan. Any loan product is
acceptable provided that the mortgage loan did not come from the sale of tax-exempt
bonds. It is for this reason that MCCs cannot be used with Home Start products.

WHAT FEES ARE ASSOCIATED WITH AN MCC?


The minimum fee charged to the borrower is $350. The maximum fee is $500. At the
time of application, the Lender can collect an administrative fee of $150 from the
borrower. Many lenders waive this fee. At the time of closing, the Lender must collect
a fee of $350 from the borrower, to be remitted to IHDA*. The process of remitting the
$350 fee to IHDA is as follows:
1. In the closing instructions to the agent, inform him/her to have a check written
in the amount of $350 and made payable to the Illinois Housing Development
Authority. The IHDA loan number should be written in the memo section of the
check.
2. Prepare an IHDA MCC Fee Transmittal Form (found at www.ihda.org).
3. Fax a copy of the check and MCC Transmittal Form to 312-832-2196.
4. Forward the check and MCC Fee Transmittal Form to:
The Illinois Housing Development Authority
P.O. Box 93397
Chicago, IL 60673
*Please note: If the MCC is a statewide MCC the fee is .0075 of the loan amount.

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HOW DOES A BORROWER QUALIFY?


Prior to completing an MCC application, the borrower should be pre-screened. Eligibility
for the program includes:
a.
b.
c.
d.

borrower must be a first-time homebuyer or exempt (see exemption below)


co-borrower (i.e. spouse) must be a first-time homebuyer or exempt
household income and property purchase price must be within program limits
home must be a qualified dwelling

EXEMPTION: If the residence to be purchased is within a targeted area or the


borrower is a Veteran, neither borrower nor spouse need be first-time homebuyers!
To obtain a list of targeted areas by County, please visit www.ihda.org. For borrowers
choosing a home in a targeted area, different (higher) income limits and purchase price
limits apply. If the loan officer determines that the applicant is eligible MCC, the
application is completed.
[Targeted Area is an area of the state containing qualified census tracts (QCT) or areas
of chronic economic distress, as defined by the IRS. A QCT is a census tract in which
seventy percent (70%) or more of the families have an income which is eighty percent
(80%) or less of the median family income, as established by HUD]

HOW IS THE MCC RESERVED?


In order to reserve a Mortgage Credit Certificate, the Lender must make the reservation
using the MITAS on-line loan reservation system at https://ilrss.ihda.org/ilrss. At the
time the reservation is made, the MCC is valid for 60 days. Please note that MITAS is
not addressed in this Guide. The document that addresses MITAS can be found at
www.ihda.org.

WHAT UNDERWRITING IS INVOLVED?


The underwriting for an MCC is the same as the underwriting for the Smart Move
program. There are two separate but simultaneous underwritings that occur: Credit
Underwriting and Tax Code Compliance Underwriting. IHDA is only involved with the
Tax Code Compliance Underwriting, which is unique to IHDA loans and is performed by
IHDA Compliance Staff. Tax Code Compliance Underwriting consists of documenting
three basic determinations:
1. Is the borrower(s) a first-time homebuyer(s) or exempt from this requirement?
2. Is the borrowers total household income within the allowable limits for the area
in which they intend to reside?
3. Is the residence a qualified dwelling whose purchase price is within the
allowable limits for the area in which it is located?

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The Lender has 60 days from the reservation date to send the Tax Code Compliance
Underwriting file to IHDA. For a detailed description of Tax Code Compliance
Underwriting, please refer to the 2010 Home Start Procedural Guide.

SUBMISSION FOR MCC COMMITMENT:


If the borrower meets all program requirements, the lender will assemble the MCC
documentation. The following is a list of documents needed and the order in which
they should be assembled:
Data Summary Sheet (Form MCC-30)
Informational Acknowledgement (Form MCC-25)
Affidavit of Buyer Application (Form MCC-26)
Affidavit of Seller
Copies of complete, signed Federal income tax returns for the previous three
years for each borrower and relevant party. W2s are required for the most
recent tax year filed. If a buyer was not required by law to file a federal income
tax return for any year during the preceding three years, an Income Tax Affidavit
is required (Form MCC- 27)
6. Lender Initial Certification (Form MCC-29) executed by an authorized
representative of the lender
7. Notice to Homebuyers regarding recapture (Form MCC 1094)
1.
2.
3.
4.
5.

The MCC Tax Code Compliance file should be sent to the following address:
Homeownership Programs
Illinois Housing Development Authority
401 North Michigan Avenue, Suite 700
Chicago, Illinois 60611

WHAT HAPPENS NEXT?


The MCC Tax Code Compliance file will be reviewed by IHDA within 72 hours after
receipt. One of the following three determinations will be assigned to the file:
1. Approved A copy of the approval will be faxed to the Lender.
2. Pending A transmittal letter will be sent to the Lender detailing the changes
that must be made and identifying additional documentation that is needed.
3. Rejected The entire Compliance file, including a written explanation as to why
the MCC is not approved, will be sent to the Lender.
You can check the status of the MCC by accessing the MITAS system.

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CANCELLATION OR CHANGES PRIOR TO CLOSING:


All cancellations must be made directly to IHDA. Changes to original documents (such
as purchase price or loan amount) must be indicated on the Lender Closing Certificate.

WHEN CAN THE MORTGAGE LOAN CLOSE?


The mortgage loan cannot close prior to the MCC approval from IHDA. For existing
structures, the mortgage loan must close within 60 days from the date of MCC approval.
For new construction, the mortgage loan must close within 180 days from the date of
MCC approval.

MCC CLOSING PROCESS:


After the MCC approval is received from IHDA, the mortgage loan can close. Please note
that MCC closing documents are unique to MCC loans and closing personnel typically
are not familiar with them; therefore, it is the Lenders responsibility to deliver the
documents to the closing table for execution and forwarding to IHDA. IHDA cannot issue
the MCC without them. Within 14 days after the mortgage loan closing, the lender
must submit the following documents to IHDA:
1. Closing Affidavit (Form MCC-32)
2. Lender Closing Certificate (Form MCC-33)
3. Any documents as required by the approval
4. If the borrower files a Federal income tax return between the date of executing
the Buyer Application Affidavit and the date of the mortgage, a copy of the
signed Federal income tax return must be submitted to the Authority. Note: The
Authority will not issue a MCC without having the prior three years of tax
returns.
The MCC Post Close file should be sent to the following address:
Homeownership Programs
Illinois Housing Development Authority
401 North Michigan Avenue, Suite 700
Chicago, Illinois 60611

ISSUING THE MORTGAGE CREDIT CERTIFICATE


IHDA will review all closing documents. If approved, IHDA will deliver an executed
Mortgage Credit Certificate (Form MCC-34) to the borrower. Please remind your
buyer(s) to keep their MCC certificate in a safe place and submit a copy of the
certificate to the IRS, not the original.

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FEDERAL RECAPTURE TAX


All IHDA programs are subject to the Federal Recapture Tax and the MCC Program is no
exception. The prospective homebuyer must be provided with The Notice to
Homebuyers for the MCC program (MCC 1094) at the time of application. The recapture
worksheet will assist in explaining the unlikely possibility of the tax being assessed to
the borrower. Please note, the Recapture Tax is covered in great detail in the Smart
Move Procedural Guide. Please refer to it for an in-depth explanation. If you need
further assistance, please contact a Homeownership Loan Officer.
Please note: The IHDA Recapture Reimbursement Policy does not apply to borrowers
utilizing a Mortgage Credit Certificate (MCC).

WHAT IF THE BORROWER REFINANCES?


Should the borrower refinance, the Department of Treasury has proposed temporary
income tax regulations governing the re-issuance of Mortgage Credit Certificates. The
regulations contain the following requirements for a re-issued MCC:
1. The MCC must be re-issued to the same holder with respect to the same
property.
2. The re-issued MCC must entirely replace the existing MCC.
3. The certified mortgage indebtedness cannot increase.
4. The MCC credit rate cannot increase.
5. The re-issued MCC cannot result in an increase in the credit amount if the
refinanced mortgage is extended. The term of the MCC must remain the same as
the term of the original MCC.
IHDA, not the Lender, will re-issue the MCC. In order to do that, IHDA will need to see a
copy of (a) the new RESPA (HUD-1) and (b) a copy of the buyers original MCC. If the
buyer has had their MCC re-issued more than once, the buyer must provide copies of
the prior re-issued MCCs. Please note: MCCs must be re-issued every time a buyer
refinances. Failure to do so can result in the buyer incorrectly filing tax returns.
Fees: The cost to the borrower to have the MCC re-issued is $150.00 for each reissuance. The check should be made payable to Illinois Housing Development
Authority and must accompany the request for re-issue.

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