What is a Mortgage Subsidy Bond?

Mortgage subsidy bond is another word for a mortgage revenue bond, which are municipal bonds which are used to fund mortgage relief programs and refinancing arrangements through the state or municipal government.

In 1980, the Mortgage Subsidy Bond Tax Act established some rules and definitions surrounding mortgage subsidies and their bonds, and, more specifically, removing their exemption from federal taxation.

Mortgage subsidies are loan programs that are meant to provide relief to a certain type of borrower by not charging them interest, similar to some student loans. Mortgage subsidy bonds are the municipal debt issued to raise capital to help pay for these programs on a local and state level.

There are similar federal subsidies, such as FHA loans, but states have their own housing finance agencies (HFAs), which may go under different names. The downside for investors is that these municipal bonds are not deductible from federal income taxes in the way that many municipal bonds are.

Mortgage Revenue Bonds (MRBs), a closely related type of bond, enjoyed tax-exempt status. They regain the exemption as “activity bonds” in 1986.

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