What is the Housing and Economic Recovery Act (HERA)?
The Housing and Economic Recovery Act (HERA) targeted the 2008 subprime mortgage crisis. HERA authorized the FHA to guarantee $300 billion in 30-year fixed-rate mortgages for subprime borrowers. To participate, lenders must write down principal loan sums up to 90% of their current assessed value.
Learning about HERA
The Housing and Economic Recovery Act (HERA) aimed to restore public trust in government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, which provided house loans. It established the Federal Housing Finance Agency (FHFA) and permitted states to refinance subprime loans with mortgage revenue bonds. The FHFA conservatorship of Fannie Mae and Freddie Mac began in 2008 as a new entity.
HERA had many subsidiary acts beneath the primary act, including:
- 2008 Housing Assistance Tax Act
- FHA Modernization Act 2008
- Secure and Fair Mortgage Licensing Act of 2008 Enforcement
The conservatorship aims to prevent Fannie Mae/Freddie Mac from requiring another public bailout, maintain accessible housing credit, and maintain a vibrant secondary mortgage market.
2008 Housing Assistance Tax Act
The HERA subtitle legislation provided a refundable tax credit of up to $7,500 for qualifying first-time homebuyers who purchased a main property between April 9, 2008, and July 1, 2009. It canceled the benefit for people over $75,000 ($150,000 for combined returns).
Individuals obtaining the tax credit were required to return it over 15 years in equal increments through a surcharge on their annual income taxes. It also offered emergency aid for redeveloping abandoned and foreclosed houses.
FHA Modernization Act 2008
This subtitle legislation raised the FHA lending ceiling from 95% to 115% of the local median house price to 150% of the GSE conforming loan limit. The law required a 3.5% down payment for FHA loans and halted HUD’s risk-based premium implementation for 12 months.
It banned seller-funded down payments and allowed the FHA to guarantee $300 billion in 30-year fixed-rate refinance loans up to 90% of the assessed value for troubled borrowers. The statute addressed mortgage agreements made before January 1, 2008.
The measure also compelled mortgage holders to receive the insured loan proceeds as full payment for all prior obligations. Participation in the program was voluntary for lenders.
FHA loans may require a 10% down payment for customers with credit scores below 580.
Secure and Fair Mortgage Licensing Act of 2008 Enforcement
This section requires all states to adopt a mortgage loan originator (MLO) license and registration system by August 1, 2009 (or August 1, 2010, for biennial legislatures). Under strict federal criteria, states could administer their systems or join the Nationwide Multistate Licensing System and Registry (NMLS).
Mortgage loan discrimination is unlawful. You can take action if you feel discriminated against due to race, religion, sex, marital status, national origin, handicap, or age. Report to the Consumer Financial Protection Bureau (CFPB) or HUD.
HERA did what?
The Housing and Recovery Act (HERA) addressed the mortgage lending industry’s most significant issues after the 2008 financial crisis and housing collapse. HERA helps prevent a repetition of the crisis, especially predatory lending.
Who made HERA?
Congress established HERA to help the mortgage sector recover and restore trust in Fannie Mae and Freddie Mac. President George W. Bush signed HERA.
The FHFA regulates which agencies?
HERA created FHFA as an executive regulatory agency. The FHFA oversees and regulates institutions such as Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.
What is HERA Title V?
HERA Title V stipulates mortgage loan originator licensing and registration nationally. This clause ensures homeowners work with trustworthy mortgage originators and lenders.
The Verdict
HERA promotes housing market stability for borrowers, lenders, and investors. HERA impacts homeowners and prospective buyers, whether they recognize it or not. Protecting against predatory loans and unethical practices allows Americans to buy a house without concern for a repetition of the 2008 housing crisis.
Conclusion
- Congress approved the Housing and Economic Recovery Act (HERA) of 2008 to address the subprime mortgage crisis.
- The FHA guaranteed up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers under HERA.
- HERA’s sub-statutes include the Housing Assistance Tax Act, the FHA Modernization Act, and the Secure and Fair Enforcement for Mortgage Licensing Act.
- HERA sets FHA down payment minimums.
