Public Law No:110-289--- The Housing and Economic Recovery Act of 2008 (H.R. 3221)
On July 30, 2008, President Bush signed H.R. 3221 into law. The legislation, called the Housing and Economic Recovery Act of 2008, will assist an estimated 400,000 homeowners facing foreclosure, by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. This aspect of the legislation, authored by House Financial Services Chairman Barney Frank (D-Mass), provides for the refinancing of up to $300 billion in troubled mortgages into 30-year loans backed by the government. This is the most significant part of the legislation in the short term, called the “Hope for Homeowners Program.” It enables the FHA to refinance the mortgages of at-risk borrowers living in their only home if: (i) mortgage holders write-down the principal of the mortgage; (ii) borrowers agree to share future equity with the federal government; and (iii) the borrower can afford to repay the new loan. For the official statement of the House Committee on Financial Services regarding this legislation, which is being called "the most comprehensive response yet to the American mortgage crisis," please click here.
The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas. The bill permanently increases the conforming loan limit to $625,000. In February, the Economic Stimulus Act of 2008 was signed, temporarily raising the conforming loan limit in high cost areas to $729,750 from $417,000 until December 31, 2008. The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area's median home price, up to $625,000. The new FHA loan limit will be the greater of $271,050 or 115 percent of an area's median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008.
Other notable provisions of the bill include:
- -the creation of a National Affordable Housing Trust Fund to help cover the cost of the FHA rescue plan for the first five years and develop affordable housing in subsequent years
- -a temporary increase in mortgage revenue bonds to refinance subprime mortgages
- -the setting of minimum requirements for mortgage originators, which mandates fingerprinting of loan originators and establishes a nationwide loan originator licensing and registration system-the requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator-states will have the ability to implement more stringent laws
- -new regulator for government sponsored enterprises (GSE) to restore investor confidence in GSE loans and help the market and economy stabilize
- -temporary raise in the loan limit for the Veteran Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008
- -first-time home buyer tax credit, which allows first-time home buyers to receive a tax refund worth up to 10 percent of a home's purchase price, up to a maximum of $7,500--the refund serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years
- -adjustment to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), allowing sellers to provide the non-foreign affidavit to a qualified closing entity and not just the buyer
- -the Community Development Block Grant Program's $4 billion allotment for communities to purchase and refurbish foreclosed homes
- -the Treasury Department's proposal to create a federal backstop program to ensure the financial well being of Fannie Mae and Freddie Mac
- -the FHA's inability to insure loans that utilize a seller-funded down-payment assistance program---down-payment assistance from family, employers and other nonprofits is still allowed
For a detailed summary of H.R. 3221, please click here.