qualified mortgage issue
(2) Qualified mortgage issue defined (A) Definition For purposes of this title, the term “qualified mortgage issue” means an issue by a State or political subdivision thereof of 1 or more bonds, but only if— (i) all proceeds of such issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences, (ii) such issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), (i), and (m)(7), (iii) such issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b), and (iv) except as provided in subparagraph (D)(ii), repayments of principal on financing provided by the issue are used not later than the close of the 1st semiannual period beginning after the date the prepayment (or complete repayment) is received to redeem bonds which are part of such issue. Clause (iv) shall not apply to amounts received within 10 years after the date of issuance of the issue (or, in the case of refunding bond, the date of issuance of the original bond). (B) Good faith effort to comply with mortgage eligibility requirements An issue which fails to meet 1 or more of the requirements of subsections (c), (d), (e), (f), and (i) shall be treated as meeting such requirements if— (i) the issuer in good faith attempted to meet all such requirements before the mortgages were executed, (ii) 95 percent or more of the proceeds devoted to owner-financing was devoted to residences with respect to which (at the time the mortgages were executed) all such requirements were met, and (iii) any failure to meet the requirements of such subsections is corrected within a reasonable period after such failure is first discovered. (C) Good faith effort to comply with other requirements An issue which fails to meet 1 or more of the requirements of subsections (g), (h), and (m)(7) shall be treated as meeting such requirements if— (i) the issuer in good faith attempted to meet all such requirements, and (ii) any failure to meet such requirements is due to inadvertent error after taking reasonable steps to comply with such requirements. (D) Proceeds must be used within 42 months of date of issuance (i) In general Except as otherwise provided in this subparagraph, an issue shall not meet the requirement of subparagraph (A)(i) unless— (I) all proceeds of the issue required to be used to finance owner-occupied residences are so used within the 42-month period beginning on the date of issuance of the issue (or, in the case of a refunding bond, within the 42-month period beginning on the date of issuance of the original bond) or, to the extent not so used within such period, are used within such period to redeem bonds which are part of such issue, and (II) no portion of the proceeds of the issue are used to make or finance any loan (other than a loan which is a nonpurpose investment within the meaning of section 148(f)(6)(A) ) after the close of such period. (ii) Exception Clause (i) (and clause (iv) of subparagraph (A)) shall not be construed to require amounts of less than $250,000 to be used to redeem bonds. The Secretary may by regulation treat related issues as 1 issue for purposes of the preceding sentence.