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I chose this topic because this is a common loop hole in the government and lower income neighborhoods. This a real issue because people have to resort to committing crime in order to pay for expensive bails and that leads to them going to jail as well and they then have to find someone  else to get the money and certain people have to work countless hours to get to even a fraction of what it cost and it cause majority of African American family's to file for bankruptcy.

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State and local governments sell tax-exempt Housing Bonds, commonly known as Mortgage Revenue Bonds (MRBs) and Multifamily Housing Bonds, and use the proceeds to finance low-cost mortgages for lower-income first-time homebuyers or the production of apartments at rents affordable to lower-income families. MRBs have made first-time homeownership possible for over 3.3 million lower-income families, historically 100,000 every year. Multifamily Housing Bonds have provided financing to produce 1.2 million apartments affordable to lower-income families.

Each state's annual issuance of Housing Bonds is capped. The 2021 limit is $110 multiplied by the state population, with a state minimum of $324.9 million. MRB mortgages are restricted to first-time homebuyers who earn no more than the area median income (AMI). Larger families can earn up to 115 percent of AMI. In 2019, state HFAs provided MRB mortgages to families with an average income of $46578, just three-quarters of the national median income. The price of a home purchased with an MRB mortgage is limited to 90 percent of the average area purchase price. MRB loans can also be used to help working families finance critical home repairs or energy efficiency upgrades.

HFAs also use their MRB authority to issue Mortgage Credit Certificates (MCCs), which provide a nonrefundable federal income tax credit for part of the mortgage interest qualified homebuyers pay each year. State HFAs have used MCCs to provide critical tax relief to more than 346,000 families.

Multifamily housing bond developments must set aside at least 40 percent of their apartments for families with incomes of 60 percent of AMI or less, or 20 percent for families with incomes of 50 percent of AMI or less. In 2019 alone, HFAs financed the development of nearly 54,000 affordable apartments through bonds.
Strengthening Housing Bonds
Maintaining and strengthening the Housing Bond program is one of NCSHA's Legislative Priorities. NCSHA is currently meeting with lawmakers to advance legislation, the Affordable Housing Bond Enhancement Act that would implement several simple but impactful changes to Housing Bonds and MCCs that will allow HFAs to serve more households.

Some of the changes in the bill include:

Increasing the MRB home improvement loan limit

Allowing MRBs to be used for refinancing loans

Providing HFAs additional flexibility in how they utilize housing bond authority

Simplifying how a borrower's MCC benefit is calculated

Contacts:

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State and local governments sell tax-exempt Housing Bonds, commonly known as Mortgage Revenue Bonds (MRBs) and Multifamily Housing Bonds, and use the proceeds to finance low-cost mortgages for lower-income first-time homebuyers or the production of apartments at rents affordable to lower-income families. MRBs have made first-time homeownership possible for over 3.3 million lower-income families, historically 100,000 every year.

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The U.S. bond market is like baseball - you have to understand and appreciate the rules and strategies, or else it will seem boring. It's also like baseball in that it's rules and pricing conventions have evolved and can seem esoteric at times.

In the "Official Major League Rule Book," it takes more than 3,600 words to cover the rules of what the pitcher can and cannot do. In this article, we're going to cover bond market pricing conventions in less than 1,800 words. Bond market classifications are briefly discussed, followed by yield calculations, pricing benchmarks, and pricing spreads.

Basic knowledge of these pricing conventions will make the bond market seem as exciting as the best World Series baseball game.

Bond Market Classifications

The bond market consists of a great number of issuers and types of securities. To talk about each specific type might fill an entire textbook; therefore, for the purposes of discussing how various bond market pricing conventions work, we make the following major bond classifications:

U.S. Treasuries: bonds issued by the United States Department of the Treasury

Corporate Bonds: bonds issued by corporations that carry an investment-grade rating

High-Yield Bonds: bonds with ratings below investment grade - also known as non-investment grade bonds or junk bonds

Mortgage-Backed Securities (MBS): a bond collateralized by the cash flows of principal and interest payments from an underlying pool of single-family residential mortgages

Asset-Backed Securities (ABS): a bond collateralized by the cash flows of an underlying pool of assets such as auto loans, credit card receivables, homeequityloans, aircraft leases, etc. The list of assets that have been securitized into ABSs is almost endless.

Agency Bonds: debt issued by the government-sponsored enterprises (GSEs), including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks

Municipal Bonds (Munis): a bond issued by a state, city or local government or its agencies

Collateralized Debt Obligations (CDOs): a type of asset-backed security backed by any one or several other ABS, MBS, bonds or loans

A Bond's Expected Return

Yield is the measure used most frequently to estimate or determine a bond's expected return. Yield is also used as a relative value measure between bonds. There are two primary yield measures that must be understood to understand how different bond market pricing conventions work: yield to maturity and spot rates.

A yield-to-maturity calculation is made by determining the interest rate ( discount rate) that will make the sum of a bond's cash flows, plus accrued interest, equal to the current price of the bond. This calculation has two important assumptions: first, that the bond will be held until maturity, and second, that the bond's cash flows can be reinvested at the yield to maturity.

A spot rate calculation is made by determining the interest rate (discount rate) that makes the present value of a zero-coupon bond equal to its price. A series of spot rates must be calculated to price a coupon paying bond - each cash flow must be discounted using the appropriate spot rate, such that the sum of the present values of each cash flow equals the price.

As we discuss below, spot rates are most often used as a building block in relative value comparisons for certain types of bonds.

Benchmarks for Bonds

Most bonds are priced relative to a benchmark. This is where bond market pricing gets a little tricky. Different bond classifications, as we have defined them above, use different pricing benchmarks.

Some of the most common pricing benchmarks are on-the-run U.S. Treasuries (the most current series). Many bonds are priced relative to a specific Treasury bond. For example, the on-the-run 10-year Treasury might be used as the pricing benchmark for a 10-year corporate bond issue.

When the maturity of a bond cannot be known with exactness because of call or put features, the bond is frequently priced to a benchmark curve. This is because the estimated maturity of the callable or put-able bond most likely does not coincide exactly with the maturity of a specific Treasury.

Benchmark pricing curves are constructed using the yields of underlying securities with maturities from three months to 30 years. Several different benchmark interest rates or securities are used to construct benchmark pricing curves. Because there are gaps in the maturities of securities used to construct a curve, yields must be interpolated between the observable yields.

For example, one of the most commonly used benchmark curves is the on-the-run U.S. Treasury curve, which is constructed using the most recently issued U.S. Treasury bonds, notes, and bills. Because securities are only issued by the U.S. Treasury with three-month, six-month, two-year, three-year, five-year, 10-year and 30-year maturities, the yields of theoretical bonds with maturities that lay between those maturities must be interpolated. This Treasury curve is known as the interpolated yield curve (or I-curve) by bond market participants.

Other Popular Bond Benchmark Pricing Curves

Spot Rate Treasury Curve: a curve constructed using the theoretical spot rates of U.S. Treasuries

Swap Curve: a curve constructed using the fixed interest rate side of interest rate swaps

Eurodollars Curve: a curve constructed using interest rates derived from eurodollar futures pricing.

Agency Curve: a curve constructed using the yields of non-callable, fixed-rate agency debt

Yield Spreads for Bonds

A bond's yield relative to the yield of its benchmark is called a spread. The spread is used both as a pricing mechanism and as a relative value comparison between bonds. For example, a trader might say that a certain corporate bond is trading at a spread of 75 basis points above the 10-year Treasury. This means that the yield to maturity of that bond is 0.75% greater than the yield to maturity of the on-the-run 10-year Treasury.

Notably, if a different corporate bond with the same credit rating, outlook and duration were trading at a spread of 90 basis points on a relative value basis, the second bond would be a better buy.

There are different types of spread calculations used for the different pricing benchmarks. The four primary yield spread calculations are:

1. Nominal Yield Spread: the difference in the yield to maturity of a bond and the yield to maturity of its benchmark

2. Zero-Volatility Spread (Z-spread): the constant spread that, when added to the yield at each point on the spot rate Treasury curve (where a bond's cash flow is received), will make the price of a security equal to the present value of its cash flows

3. Option-Adjusted Spread (OAS): An OAS is used to evaluate bonds with embedded options (such as a callable bond or put-able bond). It is the constant spread that, when added to the yield at each point on a spot rate curve (usually the U.S. Treasury spot rate curve) where a bond's cash flow is received, will make the price of the bond equal to the present value of its cash flows. However, to calculate the OAS, the spot rate curve is given multiple interest rate paths. In other words, many different spot rate curves are calculated and the different interest rate paths are averaged. An OAS accounts for interest rate volatility and the probability of the prepayment of the principal of the bond.

4. Discount Margin (DM): Bonds with variable interest rates are usually priced close to their par value. This is because the interest rate (coupon) on a variable rate bond adjusts to current interest rates based on changes in the bond's reference rate. The DM is the spread that, when added to the bond's current reference rate, will equate the bond's cash flows to its current price.

Types of Bonds and Their Benchmark Spread Calculation

High-Yield Bonds

High-yield bonds are usually priced at a nominal yield spread to a specific on-the-run U.S. Treasury bond. However, sometimes when the credit rating and outlook of a high-yield bond deteriorates, the bond will start to trade at an actual dollar price. For example, such a bond trades at $75.875, as opposed to 500 basis points over the 10-year Treasury.

Corporate Bonds

A corporate bond is usually priced at a nominal yield spread to a specific on-the-run U.S. Treasury bond that matches its maturity. For example, 10-year corporate bonds are priced to the 10-year Treasury.

Mortgage-Backed Securities (MBS)

There are many different types of MBS. Many of them trade at a nominal yield spread at their weighted average life to the U.S. Treasury I-curve. Some adjustable-rate MBS trade at a DM, others trade at a Z-spread. Some CMOs trade at a nominal yield spread to a specific Treasury. For example, a 10-year planned amortization class bond might trade at a nominal yield spread to the on-the-run 10-year Treasury, or a Z-bond might trade at a nominal yield spread to the on-the-run 30-year Treasury. Because MBS have embedded call options (borrowers have the free option of prepaying their mortgages), they are frequently evaluated using an OAS.

Asset-Backed Securities (ABS)

ABS frequently trade at a nominal yield spread at their weighted average life to the swap curve.

Agencies frequently trade at a nominal yield spread to a specific Treasury, such as the on-the-run 10-year Treasury. Callable agencies are sometimes evaluated based on an OAS where the spot rate curve(s) are derived from the yields on non-callable agencies.

Municipal Bonds

Because of the tax advantages of municipal bonds (usually not taxable), their yields are not as highly correlated with U.S. Treasury yields as other bonds. Therefore, munis frequently trade on an outright yield to maturity or even a dollar price. However, a muni's yield as a ratio to a benchmark Treasury yield is sometimes used as a relative value measure.

Collateralized Debt Obligation (CDOs)

Like the MBS and ABS that frequently back CDOs, there are many different pricing benchmarks and yield measures used to price CDOs. The eurodollar curve is sometimes used as a benchmark. Discount margins are used on floating rate tranches. OAS calculations are made for relative value analysis.

The Bottom Line

Bond market pricing conventions are a little bit tricky, but like baseball rules, understanding the basics removes some of the ambiguity and may even make it enjoyable. Bond pricing is really just a matter of identifying a pricing benchmark, determining a spread and understanding the difference between two basic yield calculations: yield to maturity and spot rates. With that knowledge, understanding how various types of bonds are priced shouldn't be intimidating.

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The U.S. bond market is like baseball - you have to understand and appreciate the rules and strategies, or else it will seem boring. It's also like baseball in that it's rules and pricing conventions have evolved and can seem esoteric at times.

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The Low-Income Housing Tax Credit (LIHTC) subsidizes the acquisition, construction, and rehabilitation of affordable rental housing for low- and moderate-income tenants. The LIHTC was enacted as part of the 1986 Tax Reform Act and has been modified numerous times. Since the mid-1990s, the LIHTC program has supported the construction or rehabilitation of about 110,000 affordable rental units each year (though there was a steep drop-off after the Great Recession of 2008-09)-over 2 million units in all since its inception.

The federal government issues tax credits to state and territorial governments. State housing agencies then award the credits to private developers of affordable rental housing projects through a competitive process. Developers generally sell the credits to private investors to obtain funding. Once the housing project is placed in service (essentially, made available to tenants), investors can claim the LIHTC over a 10-year period.

Qualifying for the Credit

Many types of rental properties are LIHTC eligible, including apartment buildings, single-family dwellings, townhouses, and duplexes.

Owners or developers of projects receiving the LIHTC agree to meet an income test for tenants and a gross rent test. There are three ways to meet the income test:

1. At least 20 percent of the project's units are occupied by tenants with an income of 50 percent or less of area median income adjusted for family size (AMI).

2. At least 40 percent of the units are occupied by tenants with an income of 60 percent or less of AMI.

3. At least 40 percent of the units are occupied by tenants with income averaging no more than 60 percent of AMI, and no units are occupied by tenants with income greater than 80 percent of AMI.

The gross rent test requires that rents do not exceed 30 percent of either 50 or 60 percent of AMI, depending upon the share of tax credit rental units in the project. All LIHTC projects must comply with the income and rent tests for 15 years or credits are recaptured. In addition, an extended compliance period (30 years in total) is generally imposed.

Computing the Credit

The annual credit claimed by a taxpayer equals a credit percentage multiplied by the project's qualified basis. The percentage is larger for new construction or substantial rehabilitation (roughly 9 percent but specified in the law as a 70 percent present value credit) than for properties acquired for rehabilitation or for projects funded using tax-exempt bonds (roughly 4 percent but specified as a 30 percent present value credit). The qualified basis equals the fraction of the cost of the housing project rented to tenants meeting the income tests. For many LIHTC projects, the owners or developers aim to rent 100 percent of the units to qualifying tenants. State housing finance agencies may allocate enhanced tax credits to qualified projects in areas where the need is greatest for affordable rental housing.

The LIHTC statute originally specified that the IRS would periodically reset the specified credit percentages to maintain the present value of the 10-year stream of tax credits at 70 percent or 30 percent of the qualified basis. However, since 2008, Congress has specified that the minimum credit rate for the 70 percent present value credit should be at least 9 percent, regardless of prevailing interest rates. Thus, in a low interest rate environment, the present value of the credits claimed over 10 years will exceed 70 percent of the qualified basis.

Allocating the credit

Congress sets a limit on the amount of LIHTC that can be allocated in any year. For 2018, each state was originally allocated $2.765 million or $2.40 per capita, whichever was larger. But Congress provided a 12.5 percent boost for 2018 through 2021, so these figures were increased to $3.1 million and $2.70, respectively for 2018. Both dollar amounts are adjusted for inflation.

This structure guarantees that states with low populations get a somewhat larger award when calculated on a per capita basis. States then allocate these credits (generally through state housing finance agencies) to developers, based on state-created qualified allocation plans. These plans are required to give priority to projects that serve very low income households and that provide affordable housing for longer time periods.

Projects financed by private activity tax-exempt bonds do not need to obtain a separate credit allocation from the state housing finance authority. The state, however, must approve the use of these bonds, which acts as a check on developers' ability to access 30 percent present value LIHTCs.

Developers generally sell the tax credits to investors, who may be better able to use the tax credits and other tax benefits of the housing project (e.g., depreciation, interest paid, net operating losses). Investors also contribute equity, often through a syndication or a partnership. The investors or limited partners usually play a passive role, receiving the tax benefits associated with the project but not participating in day-to-day management and oversight.

Most investors in LIHTC projects are corporations that have sufficient income tax liability to fully use nonrefundable tax credits. Financial institutions traditionally have been major investors, because they have substantial income tax liabilities, have a long planning horizon, and often receive Community Reinvestment Act credit from their regulators for such investments. Taxpaying investors cannot claim credits until the project is placed into service.

Calculating Costs and Benefits

The LIHTC is estimated to cost around $9.5 billion per year. It is by far the largest federal program encouraging the creation of affordable rental housing for low-income households. Supporters see it as an effective program that has substantially increased the affordable housing stock for more than 30 years. LIHTC addresses a major market failure-the lack of quality affordable housing in low-income communities. Efficiencies arise from harnessing private-sector business incentives to develop, manage, and maintain affordable housing for lower-income tenants.

Critics of the LIHTC argue that the federal subsidy per unit of new construction is higher than it needs to be because of the various intermediaries involved in its financing-organizers, syndicators, general partners, managers, and investors-each of whom are compensated for their efforts. As a result, a significant part of the federal tax subsidy does not go directly into the creation of new rental housing stock. Critics also identify the complexity of the statute and regulations as another potential shortcoming. Another downside is that some state housing finance authorities tend to approve LIHTC projects in ways that concentrate low-income communities where they have historically been segregated and where economic opportunities may be limited. Finally, while the LIHTC may help construct new affordable housing, maintaining that affordability is challenging once the required compliance periods are over.

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What is the Low-Income Housing Tax Credit and how does it work?

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The Low-Income Housing Tax Credit (LIHTC) subsidizes the acquisition, construction, and rehabilitation of affordable rental housing for low- and moderate-income tenants. The LIHTC was enacted as part of the 1986 Tax Reform Act and has been modified numerous times.

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My analysis is that poverty doesn't have a direct relationship with crime, it has an indirect relationship. However, in poorer areas there is a 3x more chance of going to jail than an area with a generally rich or middle class population this means that families that are lower income are more prone to being susceptible to high bond prices they simply can't afford .

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This source is good because it shows statistics about the impact on where you live to crime. It also gives a lot of good facts about incarceration rate and how it actually drives up the price statistics have shown that for every 400,000 the government makes people can get taxed 4 percent more on bond.

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This is a good source because it explains "A spot rate calculation is made by determining the interest rate (discount rate) that makes the present value of a zero-coupon bond equal to its price. A series of spot rates must be calculated to price a coupon paying bond – each cash flow must be discounted using the appropriate spot rate, such that the sum of the present values of each cash flow equals the price."