rp-02-24.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.601: Rules and Regulations.
(Also Part I, §§ 25, 103, 143; 1.25-4T, 1.103-1, 6a.103A-2.)

Rev. Proc. 2002-24

SECTION 1. PURPOSE
This revenue procedure provides guidance concerning the
United States and area median gross income figures that are to
be used by issuers of qualified mortgage bonds, as defined in
§ 143(a) of the Internal Revenue Code, and issuers of mortgage
credit certificates, as defined in § 25(c), in computing the
housing cost/income ratio described in § 143(f)(5).
SECTION 2. BACKGROUND
.01 Section 103(a) provides that, except as provided in
§ 103(b), gross income does not include interest on any state or
local bond. Section 103(b)(1) provides that § 103(a) shall not
apply to any private activity bond that is not a "qualified
bond" within the meaning of § 141. Section 141(e) provides that

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the term "qualified bond" includes any private activity bond
that (1) is a qualified mortgage bond, (2) meets the volume cap
requirements under § 146, and (3) meets the applicable
requirements under § 147.
.02 Section 143(a)(1) provides that the term "qualified
mortgage bond" means a bond that is issued as part of a
"qualified mortgage issue". Section 143(a)(2)(A) provides that
the term "qualified mortgage issue" means an issue of one or
more bonds by a state or political subdivision thereof, but only
if (i) all proceeds of the issue (exclusive of issuance costs
and a reasonably required reserve) are to be used to finance
owner-occupied residences; (ii) the issue meets the requirements
of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7) of
§ 143; (iii) the issue does not meet the private business tests
of paragraphs (1) and (2) of § 141(b); and (iv) with respect to
amounts received more than 10 years after the date of issuance,
repayments of $250,000 or more of principal on financing
provided by the issue are used not later than the close of the
first semi-annual period beginning after the date the prepayment
(or complete repayment) is received to redeem bonds that are
part of the issue.
.03 Section 143(f) imposes eligibility requirements
concerning the maximum income of mortgagors for whom financing
may be provided by qualified mortgage bonds. Section
25(c)(2)(A)(iii)(IV) provides that recipients of mortgage credit

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certificates must meet the income requirements of § 143(f).
Generally, under §§ 143(f)(1) and 25(c)(2)(A)(iii)(IV), these
income requirements are met only if all owner-financing under a
qualified mortgage bond and all certified indebtedness amounts
under a mortgage credit certificate program are provided to
mortgagors whose family income is 115 percent or less of the
applicable median family income. Under § 143(f)(6), the income
limitation is reduced to 100 percent of the applicable median
family income if there are fewer than three individuals in the
family of the mortgagor.
.04 Section 143(f)(4) provides that the term "applicable
median family income" means the greater of (A) the area median
gross income for the area in which the residence is located or
(B) the statewide median gross income for the state in which the
residence is located.
.05 Section 143(f)(5) provides for an upward adjustment of
the income limitations in certain high housing cost areas. Under
§ 143(f)(5)(C), a high housing cost area is a statistical area
for which the housing cost/income ratio is greater than 1.2. The
housing cost/income ratio is determined under § 143(f)(5)(D) by
dividing (a) the applicable housing price ratio by (b) the ratio
that the area median gross income bears to the median gross
income for the United States. The applicable housing price ratio
is the new housing price ratio (new housing average purchase
price for the area divided by the new housing average purchase

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price for the United States) or the existing housing price ratio
(existing housing average area purchase price divided by the
existing housing average purchase price for the United States),
whichever results in the housing cost/income ratio being closer
to 1. This income adjustment applies only to bonds issued and
nonissued bond amounts elected after December 31, 1988.
.06 The Department of Housing and Urban Development (HUD)
has computed the median gross income for the United States, the
states, and statistical areas within the states. The income
information was released to the HUD regional offices on January
31, 2002, and may be obtained by calling the HUD reference
service at 1-800-245-2691. The income information is also
available at HUD's World Wide Web site,
http:huduser.org\datasets\il.html, which provides a menu from
which you may select the year and type of data of interest. The
Internal Revenue Service annually publishes only the median
gross income for the United States.
.07 The most recent nationwide average purchase prices and
average area purchase price safe harbor limitations were
published on September 6, 1994, in Rev. Proc. 94-55, 1994-2 C.B.
716.
SECTION 3. APPLICATION
.01 When computing the housing cost/income ratio under
§ 143(f)(5), issuers of qualified mortgage bonds and mortgage
credit certificates must use $54,400 as the median gross income

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for the United States. See section 2.06 of this revenue
procedure.
.02 When computing the housing cost/income ratio under
§ 143(f)(5), issuers of qualified mortgage bonds and mortgage
credit certificates must use the area median gross income
figures released by HUD on January 31, 2002. See section 2.06 of
this revenue procedure.
SECTION 4. EFFECT ON OTHER REVENUE PROCEDURES
.01 Rev. Proc. 2001-35, 2001-22 C.B. 1293, is obsolete
except as provided in section 5.02 of this revenue procedure.
.02 This revenue procedure does not affect the effective
date provisions of Rev. Rul. 86-124, 1986-2 C.B. 27. Those
effective date provisions will remain operative at least until
the Service publishes a new revenue ruling that conforms the
approach to effective dates set forth in Rev. Rul. 86-124 to the
general approach taken in this revenue procedure.
SECTION 5. EFFECTIVE DATES
.01 Issuers must use the United States and area median
gross income figures specified in section 3 of this revenue
procedure for commitments to provide financing that are made, or
(if the purchase precedes the financing commitment) for
residences that are purchased, in the period that begins on
January 31, 2002, and ends on the date when these United States
and area median gross income figures are rendered obsolete by a
new revenue procedure.

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.02 Notwithstanding section 5.01 of this revenue procedure,
issuers may continue to rely on the United States and area
median gross income figures specified in Rev. Proc. 2001-35 with
respect to bonds originally sold and nonissued bond amounts
elected not later than May 29, 2002, if the commitments or
purchases described in section 5.01 are made not later than July
28, 2002.
DRAFTING INFORMATION
The principal author of this revenue procedure is Zoran
Stojanovic of the Office of Assistant Chief Counsel (Exempt
Organizations/Employment Tax/Government Entities). For further
information regarding this revenue procedure contact
Mr. Stojanovic at (202) 622-3980 (not a toll-free call).