Mortgage revenue bonds are a type of bond created by state and local governments through the investment of taxpayers to fund neighborhood investments. Investments go towards financing affordable housing and subsidizing affordable loans for low and middle-income earners. Low income loans help consumers of a specific community to have the capital needed to develop the city and neighborhood, thereby developing much needed infrastructure of a specific area.
The minimum bond amount each state issues is $310.00 million, however the figure varies significantly depending on the needs of the state. The maximum amount a state can issue in the year 2018 is $105 per person, meaning if a state issues the maximum amount, the total population of the state will be multiplied by $105.
Mortgage revenue bonds are guaranteed and backed by borrower’s requirement to make mortgage payments. This applies strictly to borrowers whose mortgages were financed by mortgage revenue bonds. First time home buyers have priority for financing deriving from mortgage revenue bonds. To qualify for a first-time homebuyer loan financed by mortgage revenue bonds, the borrower’s income must meet the requirements set forth by the state. Borrower’s with high income cannot qualify for such a program.
How Mortgage Revenue Bonds Help Consumers and Local Governments
While there are many reasons why governments issue mortgage revenue bonds, the main function of this particular bond is to provide mortgage options to borrowers who could typically not qualify elsewhere. Mortgages that utilize MRB’s have lower interest rates which makes home affordability more widespread.
Mortgage revenue bonds are a type of fiscal policy used to spur investment and make home ownership a possibly for millions. Many parties benefit from this type of arrangement including the borrower who gets approved for the loan, neighbor’s whose property values increase, and local and state governments that have increased taxation power because of the new income deriving from higher property values and property tax payments from the new property owners. This proves vital to the development of a local city or county.
Purpose of Mortgage Revenue Bonds
To incentivize development in underdeveloped cities or communities, state and local governments authorize mortgage revenue bonds to pay for redevelpment and urbanization of an under utilized portion of a state. California for example, has created the California Redevelopment Law. The law includes the creation of a new government agency called the Community Redevelopment Agency (CRA). The CRA’s main initiatives are to incentivize the rehabilitation of real estate structures and to develop new ones.
Mortgage revenue bonds are a financing method used to pay the costs of redevelopment projects. Additionally, revenue bonds are tax exempt and issued through the various housing financial agencies to assist first time homebuyers qualify for mortgages.
With many homes being old and outdated in some cities, the California legislature has passed numerous redevelopment laws to initiate the redevelopment of property. The goals of the initiative are numerous. They include improving building safety and enhancing the community by increasing the appeal of the properties. Redevelopment plans contribute to employment in the construction industry, increase property values, thereby spurring economic growth which in turn would increase local tax collection.