Housing and Economic Recovery Act Explained
The Housing and Economic Recovery Act (HERA) came into being as a countermeasure to recover the U.S. economy following the subprime mortgage crisis of 2008. HERA facilitated a Federal Housing Administration (FHA) guarantee to the tune of $300 billion in fresh mortgages aimed at subprime borrowers. To be deemed eligible for participation, financiers needed to write down the balances on loans up to 90 percent of their current assessed worth.
A Little More on the Housing and Economic Recovery Act
The Housing and Economic Recovery Act came into being to reform public opinion in favor of Fannie Mae and Freddie Mac. Under the purview of this act, states were permitted to use mortgage revenue bonds to refinance subprime loans. The enactment of HERA led to the founding of the Federal Housing Finance Agency (FHFA) – a new organization that ultimately brought both Fannie Mae and Freddie Mac under conservatorship in 2008.
There were several subtitle acts under the Housing and Economic Recovery Act; the following subtitle acts are worth mentioning:
Housing Assistance Tax Act of 2008: This subtitle act provided first-time homebuyers with a significant 10 percent tax credit on the purchase price of residential properties, with the option to repay over 15 years in equal installments. There were certain terms involved, however, and that included an upper limit of $7,500 on the purchase price. In addition, these perquisites were limited to property purchases that were made between April 9, 2008 and July 1, 2009 only. Moreover, homebuyers with annual incomes exceeding $75,000 for individual returns and $150,000 for joint returns were deemed unqualified for receiving tax credit. The act, however, assisted homebuyers in renovating abandoned and foreclosed homes.
FHA Modernization Act of 2008: This act augmented the FHA by boosting its loan limit from 95 percent to 110 percent of area median home price. It allowed up to 150 percent of the GSE conforming loan limit or $625,000. The act additionally made it obligatory to set a 3.5 percent down payment precondition to obtain a FHA loan. It also set a 1-year moratorium on the U.S. Department of Housing and Urban Development (HUD) implementation of risk-based premiums. The act also prohibited sellers from funding down payments and sanctioned the Federal Housing Administration to provide insurance cover for a maximum of $300 billion of 30-year fixed rate refinance loans up to 90 percent of assessed market value for distressed mortgagors. The act covered all mortgage pledges made up to January 1, 2008. Furthermore, the FHA Modernization Act mandated for existing beneficiaries to accept the earnings of the insured loan as compensation in full for all standing debts. However, it was still not obligatory for lenders to participate in this program.
Secure and Fair Enforcement for Mortgage Licensing Act of 2008: This act made it obligatory for all states to appoint a Mortgage Loan Originator licensing and registration system. States can choose to run their own systems, conditional on rigorous federal standards, or they can join in the Nationwide Mortgage Licensing System and Registry.
References for Housing Economic Recovery Act