What Is a Mortgage Revenue Bond (MRB)?
A mortgage revenue bond (MRB) is a type of municipal bond that is issued by local housing authorities to finance mortgages for qualified, usually people whose self-reported incomes were in the lowest income bracket, first-time homebuyers.
- A mortgage revenue bond (MRB) is a type of municipal bond that is issued by local housing authorities to finance mortgages for qualified, usually people whose self-reported incomes were in the lowest income bracket, first-time homebuyers.
- Typically, mortgage revenue bonds are tax-free for investors and are secured by the sum of all the monthly mortgage payments.
- Every state in the U.S. issues a varying amount of mortgage revenue bonds annually as this figure is capped by a multiple of that state's population.
Understanding Mortgage Revenue Bonds (MRBs)
Mortgage revenue bonds (MRB) are bonds issued by local or state Housing Finance Agencies (HFA). Typically, MRBs are tax-free for investors and are secured by the sum of all the monthly mortgage payments. Funds from the sale of these bonds are then used by the HFA to continue financing affordable mortgages for first-time homebuyers whose self-reported incomes were in the lowest income brackets.
The mortgage revenue bonds (MRBs) are secured by the promise of monthly payments by the borrowers whose home mortgages were financed through the sale of the bonds. Generally, only people purchasing a first home are eligible for these mortgages. They must also have an income below a certain level (usually at or just slightly above the local median income).
Every state in the United States issues a varying amount of mortgage revenue bonds annually. This is due to the fact that the issuance is capped by a multiple of that state's population. MRBs for 2020 had these criteria:
- the state issuance limit is $105 multiplied by the state population
- minimum state issuance is $321.8 million
- qualified first-time homebuyers cannot earn more than the area median income
- purchased home price cannot exceed 90% of the area's average purchase price
For example, Wyoming was the least populated state in the U.S. (according to the July 2021 census) with 578,803 people. Therefore, the annual MRB issuance limit would be $60,774,315 [105 multiplied by 578,803].
Mortgage revenue bonds have allowed people whose self-reported incomes were in the lowest income brackets to purchase their first home. The MRB loans' below-market interest rates lower the homeowners’ monthly payments. This lowering of payments has the effect of helping the borrower qualify for a mortgage since the monthly payment will represent a smaller portion of their monthly income. It also helps assure that they’ll be able to afford the monthly payment and avoid defaulting on their loan, which makes the MRBs less risky for investors.
Many people consider MRBs a “win-win” tool of fiscal policy. This belief is because everyone in the investment’s loop stands to benefit from the issue of MRBs.
- Investors benefit as they get a relatively safe investment that is also tax-free. So even if the interest rate is not unusually high, the fact that the bond is tax-exempt makes it an attractive investment.
- The HFA benefits by having a consistent and reliable source of cash, which allows them to finance mortgages continually. Additionally, the HFA profits directly from the payment of these mortgages.
- Homebuyers benefit by getting home loans at below-market interest rates (BMIR). The law even dictates that the homebuyers' mortgage interest rate cannot be more than 1.125% points higher than the MRBs interest rate. Buyers may also receive other benefits that can come with an MRB loan. For example, buyers may be eligible to purchase a home with a smaller down payment than usual, or they may receive help with closing costs. Furthermore, by increasing home-ownership, these loans can help revitalize and stabilize neighborhoods, encouraging greater community development.