article: SECTION 1. SHORT TITLE. This Act may be cited as the ``First-time Homebuyer Affordability Act of 1999''. SEC. 2. FINDINGS AND POLICY. (a) Findings.--The Congress finds that-- (1) it is desirable to make funds available from individual retirement plans to encourage first time home ownership, and (2) the tax and penalty on the premature withdrawal of funds from individual retirement plans are substantial impediments to making such funds available for that purpose. (b) Policy.--It is the policy of the Congress to remove impediments to home investment by first-time homebuyers by permitting owners of individual retirement plans to direct the trustees of such plans to invest plan funds as home equity or debt in the homes of such owners or in the home of family members who are first-time homebuyers. SEC. 3. CERTAIN RETIREMENT PLANS AUTHORIZED TO MAKE EQUITY INVESTMENTS IN PRINCIPAL RESIDENCES FOR FIRST-TIME HOMEBUYERS. (a) Exemption From Prohibited Transaction Rules.--Section 4975 of the Internal Revenue Code of 1986 (relating to tax on prohibited transactions) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following new subsection: ``(h) Special Rule for Home Equity Participation Arrangements.-- ``(1) In general.--The prohibitions provided in subsection (c) shall not apply to any qualified home equity participation arrangement to the extent that the amount paid to acquire the ownership interest referred to paragraph (2)(A) does not exceed $10,000. ``(2) Qualified home equity participation arrangement.--For purposes of this subsection-- ``(A) In general.--The term `qualified home equity participation arrangement' means an arrangement-- ``(i) under which the trustee of an individual retirement plan, at the direction of the eligible participant, shall acquire an ownership interest in any dwelling unit which within a reasonable period of time (determined at the time the arrangement is executed) is to be used as the principal residence for a first- time homebuyer, and ``(ii) which meets the requirements of subparagraph (B). ``(B) Ownership interest requirement.--An arrangement shall meet the requirements of this subparagraph if the ownership interest described in subparagraph (A)-- ``(i) is a fee interest in such property (and, in the case of an arrangement which is not otherwise at arm's length, the trustee's fee interest would be reasonable in an arm's length arrangement), ``(ii) by its terms requires repayment in full upon the sale or other transfer of the dwelling unit, and ``(iii) may not be used as security for any loan secured by any interest in the dwelling unit. ``(3) Definitions.--For purposes of this subsection-- ``(A) Eligible participant.--The term `eligible participant' means an individual on whose behalf an individual retirement plan is established. ``(B) First-time homebuyer.--The term `first-time homebuyer' means an individual who-- ``(i) is an eligible participant or qualified family member, and ``(ii) had (and if married, such individual's spouse had) no present ownership interest in a principal residence at any time during the 24-month period before the date of the arrangement. ``(C) Qualified family member.--The term `qualified family member' means a child (as defined in section 151(c)(3)), parent, or grandparent of the eligible participant (or such participant's spouse). Section 152(b)(2) shall apply in determining if an individual is a parent or grandparent of an eligible participant (or such participant's spouse). ``(D) Acquisition; etc.-- ``(i) Acquisition.--The term `acquisition' includes construction, reconstruction, and improvement related to such acquisition. ``(ii) Acquisition cost.--The term `acquisition cost' has the meaning given such term by section 143(k)(3). ``(E) Principal residence.--The term `principal residence' has the same meaning as when used in section 121.''. (b) Effective Date.--The amendment made by this section shall apply to arrangements entered into after the date of the enactment of this Act. SEC. 4. LOANS USED TO ACQUIRE PRINCIPAL RESIDENCES FOR FIRST-TIME HOMEBUYERS. (a) Individual Retirement Plans.--Section 408(e) of the Internal Revenue Code of 1986 (relating to tax treatment of accounts and annuities) is amended by adding at the end thereof the following new paragraph: ``(7) Loans used to purchase a home for first-time homebuyers.-- ``(A) In general.--Paragraph (3) shall not apply to any qualified home purchase loan made by an individual retirement plan. ``(B) Qualified home purchase loan.--For purposes of this paragraph, the term `qualified home purchase loan' means a loan-- ``(i) made by the trustee of an individual retirement plan at the direction of the individual on whose behalf such plan is established, ``(ii) the proceeds of which are used for the acquisition of a dwelling unit which within a reasonable period of time (determined at the time the loan is made) is to be used as the principal residence for a first-time homebuyer, ``(iii) which by its terms requires interest on the loan to be paid not less frequently than monthly, ``(iv) which by its terms requires repayment in full not later than the earlier of-- ``(I) the date which is 15 years after the date of acquisition of the dwelling unit, or ``(II) the date of the sale or other transfer of the dwelling unit, ``(v) which by its terms treats-- ``(I) any amount required to be paid under clause (iii) during any taxable year which is not paid at the time required to be paid, and ``(II) any amount remaining unpaid as of the beginning of the taxable year beginning after the period described in clause (iv), as distributed during such taxable year to the individual on whose behalf such plan is established and subject to section 72(t)(1), and ``(vi) which bears interest from the date of the loan at a rate not less than 2 percentage points below, and not more than 2 percentage points above, the rate for comparable United States Treasury obligations on such date. Nothing in this paragraph shall be construed to require such a loan to be secured by the dwelling unit. ``(C) Limitation on amount of loans.--The amount of borrowings to which paragraph (3) does not apply by reason of this paragraph shall not exceed $10,000. ``(D) Denial of interest deduction.--No deduction shall be allowed under this chapter for interest on any qualified home purchase loan. ``(E) Definitions.--For purposes of this paragraph-- ``(i) First-time homebuyer.--The term `first-time homebuyer' has the meaning given such term by section 4975(h)(3)(B). ``(ii) Acquisition.--The term `acquisition' has the meaning given such term by section 4975(h)(3)(D)(i). ``(iii) Principal residence.--The term `principal residence' has the same meaning as when used in section 121. ``(iv) Date of acquisition.--The term `date of acquisition' means the date-- ``(I) on which a binding contract to acquire the principal residence to which subparagraph (B) applies is entered into, or ``(II) on which construction, reconstruction, or improvement of such a principal residence is commenced.''. (b) Prohibited Transaction.--Section 4975(d) of the Internal Revenue Code of 1986 (relating to exemptions from tax on prohibited transactions) is amended by striking ``or'' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting ``; or'', and by inserting after paragraph (15) the following new paragraph: ``(16) any loan that is a qualified home purchase loan (as defined in section 408(e)(7)(B)).''. (c) Effective Date.--The amendments made by this section shall apply to loans made after the date of the enactment of this Act.
summary: Allows the use of amounts in an individual retirement plan to make loans of up to $10,000 to purchase a home for a first-time homebuyer on behalf of an eligible participant or a family member. Prohibits a related interest deduction. Requires repayment within 15 years.