Uncovering the Housing and Economic Recovery Act (HERA) of 2008
The Housing and Economic Recovery Act (HERA), introduced in response to the financial turmoil of 2008, was crafted to provide robust support and reform for the declining housing market. It empowered the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers, demanding lenders reduce principal loans to 90% of the appraised values.
Key Highlights
- Protection Legislation: Passed by Congress in response to the economic crisis, the Act includes measures to stabilize the housing market.
- Federal Support: Enabled the FHA to back $300 billion in new fixed-rate mortgages.
- Comprehensive Structure: Comprised of sub-statutes like the Housing Assistance Tax Act, FHA Modernization Act, and Secure and Fair Enforcement for Mortgage Licensing Act.
- Minimum Standards: Established baseline down payment standards for FHA loans.
Rebuilding Trust in the Housing Market
HERA was also pivotal in re-establishing trust in government-sponsored enterprises responsible for home loans, particularly Fannie Mae and Freddie Mac. It facilitated state refinancing of subprime loans through mortgage revenue bonds and initiated the Federal Housing Finance Agency (FHFA), which placed Fannie Mae and Freddie Mac under conservatorship to safeguard investor confidence.
Sub-Acts Included in HERA:
- Housing Assistance Tax Act: Offered tax credits for first-time homebuyers, providing critical financial support during the purchase process for homes bought between April 9, 2008, and July 1, 2009.
- FHA Modernization Act: Raised loan limits, standardized down payment requirements, and temporarily halted risk-based premiums for stability.
- Secure and Fair Enforcement for Mortgage Licensing Act: Required states to have a licensing system for mortgage loan originators, ensuring regulatory compliance and borrower protection.
Provisions in Detail
Housing Assistance Tax Act of 2008
This segment provided refundable tax credits for first-time homebuyers equivalent to 10% of the home’s purchase price (up to $7,500), contingent on the earnings being below specified thresholds. Repayments were uniformly spread over 15 years through additional income tax surcharges. This Act also addressed issues related to the redevelopment of abandoned and foreclosed homes, offering much-needed emergency assistance.
FHA Modernization Act of 2008
A crucial segment aimed at increasing access to redesigned FHA loans. The loan limit was elevated to 115% of the area median home price, exigently mandated a 3.5% down payment, and temporarily paused HUD’s implementation of risk-based premiums. Key features included prohibiting seller-funded payments and voluntary lender participation in refinancing distressed mortgages with FHA backing.
Secure and Fair Enforcement for Mortgage Licensing Act of 2008
This Act required all states to establish a system for mortgage loan originator licensing, aligned with federal guidelines. By 2009 or 2010 for states with biennial legislative sessions, states had to either operate their own systems or join the Nationwide Multistate Licensing System (NMLS). Mortgage lending discrimination based on numerous protected characteristics was explicitly outlawed by this Act.
Ensuring Fair Mortgage Practices
The Housing and Economic Recovery Act took significant steps to remedy the deficiencies in the mortgage lending sector. It was aimed at preventing predatory lending and set a precedent for safeguarding consumers moving forward.
A Collaborative Effort for Industry Confidence
HERA was the result of a collaborative effort, passed by Congress and signed into law by President George W. Bush, to strengthen the mortgage lending industry and renew the integrity of Fannie Mae and Freddie Mac.
Understanding the Federal Housing Finance Agency (FHFA)
Established under HERA, the FHFA was vested with the responsibility of overseeing entities such as Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. This gave it the executive power to ensure these entities’ operational integrity and market stability.
Nationwide Standards for Mortgage Originators
Title V of HERA promotes uniform standards for the licensing and registration of mortgage loan originators, designed to provide borrowers with transparent and credible services, ensuring their protection while acquiring mortgage loans.
The Big Picture
HERA represents a significant legislative effort aimed at fostering a stable housing market. Whether you’re a current homeowner or looking to purchase, understanding HERA’s protections against predatory practices is vital. By ensuring a trustworthy and reformed housing sector, HERA instilled confidence that we would not face another crisis like 2008, allowing Americans to embrace homeownership with renewed assurance.
Related Terms: subprime mortgage crisis, Federal Housing Administration, Fannie Mae, Freddie Mac, Federal Housing Finance Agency.
References
- Congress.gov, U.S. Congress. “H.R.3221 — Housing and Economic Recovery Act of 2008”.
- U.S. Department of Housing and Urban Development. “Let FHA Loans Help You”.
- George W. Bush White House Archives. “President Bush Signs the Clean Boating Act of 2008 and the Housing and Economic Recovery Act of 2008 Into Law”.
