What is a Mortgage Revenue Bond (MRB)
Mortgage revenue bonds (MRBs) are bonds issued by local or state Housing Finance Agencies (HFAs). The HFA will issue the tax-free bonds to investors. Funding from the sale of these bonds is then used to finance affordable mortgages for low- and middle-income people.
Each state in the U.S. issues a different amount of MRBs, with a minimum state issuance of bonds worth a total of $310.71 million. In 2018, the upper limit that a state could issue was the equivalent of $105 multiplied by the state’s population. For example, if Wyoming’s population were 579,000 in 2018, the limit to the amount for issuing MRBs would be $60.795 million.
BREAKING DOWN Mortgage Revenue Bond (MRB)
The mortgage revenue bonds (MRBs) are secured by the promise of monthly payments by the borrowers whose home mortgages were financed by 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).
Mortgage revenue bonds have allowed many low- and moderate-income people 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.
The Benefits of MRBs
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. When someone invests in MRBs, 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.
In turn, the HFAs benefit by having a consistent and reliable source of cash, which allows them to finance mortgages continually. The HFAs profit directly from the payment of these mortgages.
Those seeking to buy a home benefit from below-market interest rates (BMIR). The law even dictates that the home-buyers mortgage interest rate cannot be more than 1.125 percent points higher than the MRB’s 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.