What Is the Housing and Economic Recovery Act (HERA)?
The Housing and Economic Recovery Act (HERA) was drafted to address the fallout from the subprime mortgage crisis of 2008. The Housing and Economic Recovery Act allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new, 30-year fixed-rate mortgages for subprime borrowers. In order to participate, lenders were required to write down the balances on principal loans up to 90% of their current appraised value.
- The Housing and Economic Recovery Act (HERA) of 2008 was a piece of financial reform legislation passed by Congress in response to the subprime mortgage crisis.
- The act allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers.
- HERA is composed of several sub-statutes, including the Housing Assistance Tax Act, the FHA Modernization Act, and the Secure and Fair Enforcement for Mortgage Lending Act.
Understanding the Housing and Economic Recovery Act (HERA)
The Housing and Economic Recovery Act was ultimately intended to renew public faith in government-sponsored enterprises (GSEs) that provided home loans—namely Fannie Mae and Freddie Mac. It allowed states to refinance subprime loans with mortgage revenue bonds and created the Federal Housing Finance Agency (FHFA). As a new agency, the FHFA used its newfound authority to put Fannie Mae and Freddie Mac under conservatorship in 2008.
HERA also included a number of sub-title acts under the main act, including:
- Housing Assistance Tax Act of 2008
- FHA Modernization Act of 2008
- Secure and Fair Enforcement for Mortgage Licensing Act of 2008
Housing Assistance Tax Act of 2008
This subtitle act in HERA offered a refundable tax credit for qualified first-time homebuyers—related to purchases on or after April 9, 2008, and before July 1, 2009—equal to 10% of the purchase price of a principal residence, up to $7,500. It also eliminated the credit for taxpayers with incomes over $75,000 ($150,000 for joint returns).
For those receiving the tax credit, repayment was expected over 15 years via equal installments through a surcharge on the taxpayers’ annual income taxes. It also provided emergency assistance for the redevelopment of abandoned and foreclosed homes.
FHA Modernization Act of 2008
This subtitle act increased the FHA loan limit from 95% to 110% of area median home price, up to 150% of the GSE conforming loan limit (i.e., $625,000). It also mandated a 3.5% down payment for all FHA loans and placed a 12-month moratorium on the U.S. Department of Housing and Urban Development's implementation of risk-based premiums. It also prohibited seller-funded down payments while authorizing the FHA to insure up to $300 billion of 30-year fixed-rate refinance loans up to 90% of appraised for distressed borrowers. Mortgage commitments made on or before January 1, 2008, were covered under the act.
In addition, the act required existing mortgage holders to accept the proceeds of the insured loan as payment in full for all preexisting indebtedness. Lender participation in this program was voluntary.
Secure and Fair Enforcement for Mortgage Licensing Act of 2008
This part of the act required all states to implement a mortgage loan originator (MLO) licensing and registration system by August 1, 2009 (or August 1, 2010, for legislatures that meet biennially). States were allowed to operate their own systems, subject to stringent federal standards, or they can participate in the Nationwide Mortgage Licensing System and Registry (NLMS).
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).