A bill to amend the Internal Revenue Code of 1954 to clarify certain requirements which apply to mortgage subsidy bonds.

Amends the Internal Revenue Code to revise requirements for the exclusion of interest on mortgage subsidy bonds.

Repeals provisions which allow tax-exempt status for such bonds if 95 percent of the mortgages financed by such issues are in compliance with stated requirements. Provides that a showing that the issuing authority has tried in good faith to satisfy all requirements will cure a failure to meet any particular requirement if such failure is corrected within a reasonable time after its discovery. Allows bondholders to rely upon an issuer's good faith covenant as to compliance.

Revises the new homeowner requirements to allow eligibility for bond-financed mortgages for persons who are residing in substandard housing or who have lost their homes because of natural disasters or governmental action.

Changes the method of determining the average area purchase price for purposes of the purchase price requirements for bond-financed mortgages. Specifies that the average area purchase price shall not include residences which are not typically financed through normal real estate mortgage loans and that such prices may be determined separately for new and previously occupied homes.

Revises the arbitrage requirements to increase the amount by which interest rates on tax-exempt mortgage subsidy bonds may exceed the interest rates on mortgages financed with such bonds. Changes the method of determining the yield on an issue. Specifies that issuers are not required to dispose of any investment and realize a loss in order to satisfy arbitrage restrictions. Allows two or more qualified mortgage bond issues of a single issuer to be combined for purposes of determining compliance with arbitrage requirements. Permits issuers to maintain a reasonable reserve against investment losses and to allocate credits or payments between eligible mortgagors.

Exempts mortgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration from certain mortgage assumption requirements.

Includes energy impacted areas within the definition of targeted areas for purposes of the special treatment of targeted area residences. Transfers to the States the authority to designate areas of chronic economic distress. Limits the designation of areas of chronic economic distress to 25 percent of the geographic area within a State.

Redefines statistical areas to include two or more statistical areas combined.

Repeals the registration requirements for bond issues.