text: 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.
target: 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.
feat_title: First-time Homebuyer Affordability Act of 1999