State and local governments sell tax-exempt Housing Bonds, commonly known as Mortgage Revenue Bonds (MRBs) and Multifamily Housing Bonds, and use the proceeds to finance low-cost mortgages for lower-income first-time homebuyers or the production of apartments at rents affordable to lower-income families. MRBs have made first-time homeownership possible for nearly 3.5 million lower-income families, historically 100,000 every year. Multifamily Housing Bonds have provided financing to produce almost 1.4 million apartments affordable to lower-income families.
Each state’s annual issuance of Housing Bonds is capped based on population, with a minimum authority amount for small states. MRB mortgages are restricted to first-time homebuyers who earn no more than the area median income (AMI). Larger families can earn up to 115 percent of AMI. In 2022, state HFAs provided MRB mortgages to families with an average income of $59,465, just 80 percent of the national median income. The price of a home purchased with an MRB mortgage is limited to 90 percent of the average area purchase price. MRB loans can also be used to help working families finance critical home repairs or energy efficiency upgrades.
HFAs also use their MRB authority to issue Mortgage Credit Certificates (MCCs), which provide a nonrefundable federal income tax credit for part of the mortgage interest qualified homebuyers pay each year. State HFAs have used MCCs to provide critical tax relief to 398,000 families.
Multifamily housing bond developments must set aside at least 40 percent of their apartments for families with incomes of 60 percent of AMI or less, or 20 percent for families with incomes of 50 percent of AMI or less. In 2022 alone, HFAs financed the development of more than 59,000 affordable apartments through bonds.
Maintaining and strengthening the Housing Bond program is one of NCSHA’s Legislative Priorities.
The Affordable Housing Bond Enhancement Act
On June 6, 2023, Senators Catherine Cortez Masto (D-NV) and Bill Cassidy (R-LA) introduced the Affordable Housing Bond Enhancement Act (S.1805). The bill would implement several simple but impactful changes to MRBs and MCCs that will expand the supply of affordable homes and improve access to homeownership for low and moderate-income home buyers.
Some of the changes in the bill include:
- Increasing the MRB home improvement loan limit
- Allowing MRBs to be used for refinancing loans
- Providing HFAs additional flexibility in how they utilize housing bond authority
- Simplifying how a borrower’s MCC benefit is calculated
- Reducing the time period for the MRB and MCC recapture tax from nine years to five
- Extending the amount of time HFAs can use converted MCC authority from two years to four;
- Allowing HFAs to reconvert MCC authority back into MRBs two years after the conversion, rather than one.
For more information on the Affordable Housing Bond Enhancement Act, see NCSHA’ssection-by-section analysis, which describes each of the provisions in more detail, and NCSHA’sone-page summaryof the bill.
Contacts:
- To find local housing assistance, please contact your state’s Housing Finance Agency (HFA).
- To learn more about NCSHA’s advocacy work in this area or to attend a related education event, complete the general inquiry form.
- Members of the media, please contact Lisa Bowman, Director of Marketing and Communications, at lbowman@ncsha.org.
FAQs
Like most municipal bonds, housing authority bonds have historically been viewed as very safe investments. In this case, the bonds are backed by the federal government, which views them as a means of encouraging the construction of housing for low-income people.
What does it mean to short housing bonds? ›
Shorting the housing market is the practice of taking a position to sell an asset with the view that real estate will fall in value. This enables traders to hedge their exposure to the market and even profit from the decline.
How do mortgage revenue bonds work? ›
Tax-exempt mortgage revenue bonds are used to lower the costs of housing to homeowners and renters. In issuing bonds, governments raise money for housing-related loans (mortgages and construction loans) at interest rates which are below prevailing market rates.
What are bonds in housing? ›
Housing bonds are used to finance low-interest. mortgages for low and moderate income homebuyers, as well as for the acquisition, construction, and rehabilitation of multifamily housing for low-income renters. Investors purchase housing bonds at low interest rates because the income from them is tax-free.
Are state bonds risky? ›
Buying government bonds is a safe investment and it's highly unlikely that you'll lose money.
What is the safest government bond to invest in? ›
Treasuries are generally considered"risk-free" since the federal government guarantees them and has never (yet) defaulted. These government bonds are often best for investors seeking a safe haven for their money, particularly during volatile market periods. They offer high liquidity due to an active secondary market.
How did Michael Burry short the housing market? ›
The Bottom Line. Burry likely will be best known for being one of the few investors who predicted the subprime mortgage crisis that lasted from 2007 to 2010. He shorted the 2007 mortgage bond market by swapping CDOs and profited mightily from it.
Are short term bonds a good investment right now? ›
Short-term bond funds can be a good place to invest money that you may need in the next few years. Keep in mind that these funds are not risk-free, though they are safer than investing in high-yield bonds or the stock market. Investors looking to earn yields with even less risk, might consider money-market funds.
When should you short bonds? ›
Short Selling
Essentially, as interest rates jump, bond prices tend to fall (and vice versa). 4 Therefore, a person anticipating interest rate hikes might look to make a short sale.
What is a mortgage bond for dummies? ›
A mortgage bond, simply put, is a type of bond secured by mortgages. These financial instruments typically hold real estate as collateral. Issuers sell mortgage bonds to real estate investors, who then receive regular interest payments on the underlying mortgage loans until that debt is paid off.
With a mortgage bond, real estate investors receive monthly interest payments and often see growth in the value of their portfolios over time. Their monthly returns consist of both interest and principal, but the amount they receive can vary each month.
Are mortgage bonds safe? ›
As long as most of the homeowners in the mortgage pool keep up with their payments, a mortgage bond is a safe and reliable income-producing security.
Are housing bonds safe? ›
Mortgage-backed securities are a more secure, low-risk investment because they're backed by GSEs or the federal government.
Is bond the same as rent? ›
A rental bond is the security deposit you pay to your new landlord before you move in. The bond amount is usually equal to four weeks of rent. To get your bond back, you'll need to: pay your rent on time.
What is the difference between a bond and a mortgage? ›
A mortgage can be defined as a document/deed in terms whereof immovable property or a real right is encumbered as security for an indebtedness or obligation and the mortgage bond enables the Mortgagee to establish a preferential right against other creditors.
Are state municipal bonds a good investment? ›
Investing in municipal bonds is a good way to preserve capital while generating interest. Municipal bonds hold several tax advantages over corporate bonds.
Are government bonds still a good investment? ›
Relative to higher-risk securities, like stocks, Treasury bonds have lower returns. Yet even during periods of low yields, U.S. Treasury bonds remain sought-after because of their perceived stability and liquidity, or ease of conversion into cash.
Which government bonds are best to buy? ›
Types of Government Bonds in India
GOI Savings Bond: Offering a current interest rate of 8.05% till 31st December 2023, the GOI Savings Bonds are backed by the government, making them a stable and reliable investment. These bonds are ideal for those focused on capital preservation and desiring a steady income stream.
Are government agency bonds a good investment? ›
As fixed-income securities, agency bonds represent a safe investment and are often compared to Treasury bonds (T-bonds) for their low risk and high liquidity.
