Understanding the Housing & Economic Recovery Act

This is a mouthful of information - but very informative if you own Real Estate. If you are unaware of the Housing & Economic Act or don't quite understand it - Please read through this & refer to the links for further information. If you have any questions or need to speak with us directly, you may do so at anytime.

H.R. 3221, the "Housing and Economic Recovery Act of 2008," passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:

• GSE Reform- including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
  View 2009 FHA and GSE loan limit estimates (PDF: 1.9M)

• FHA Reform- the 2008 Economic Stimulus limits will expire on December 31, 2008. Accordingly, the US Department of Housing and Urban Development (HUD) and the government sponsored enterprises (GSEs) have published new loan limits for 2009. Based on the permanent legislation passed in July, the new loan limits will go down from 125% of local area median to 115% of local area median. In addition, the high cost ceiling will reduce from $729,750 to $625,500. NAR is working to make the higher loan limits permanent, but has not yet been successful. Appeals to local area loan limits determined by HUD for implementing provisions of HERA must be made by December 6, 2009.
  Read more>
  FHA Loan Limits> (PDF: 540KB)
  FHA's mortgagee letter> (PDF: 152 KB)

• Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
  First-time homebuyer tax credit chart (PDF: 98K)
  Frequently asked questions about the first-time homebuyer tax credit (PDF: 161K)

• Additional Property Tax Deduction - HERA provides a one-year benefit that will be available to all homeowners. Under current law, property taxes are deductible only if an individual itemizes his/her deductions on Schedule A of their tax return. The new provision will permit a deduction of up to $500 ($1000 on a joint return) for all individuals who utilize the standard deduction and do not itemize. Instructions will be provided on the 2008 tax return when it is distributed at year-end.

• FHA foreclosure rescue- development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 90% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
  FHA Foreclosure Rescue Chart (PDF: 87K)

• Seller-funded downpayment assistance programs- codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
  More about the seller-funded downpayment assistance provision
  Tips to finding downpayment assistance programs (PDF: 39K)

• VA loan limits- temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

• Risk-based pricing- puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.

• GSE Stabilization- includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

• Mortgage Revenue Bond Authority - authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

• National Affordable Housing Trust Fund- Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.

• CDBG Funding - Provides $4billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
  More about the CDBG funding provision

• LIHTC - Modernizes the Low Income Housing Tax Credit program to make it more efficient.

• Loan Originator Requirements- Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

• Modification of $250,000/$500,000 Exclusion - The sole real-estated related "pay-for" among the tax incentives modifies the $250,000/$500,000 exclusion of gain on the sale of a principal residence. Beginning in 2009, the exclusion, as it applies to a second home (or rental property) that is converted to a principal residence will be allocated. When the second home is sold, any gain attributable to use as a second home (or rental property) will be taxed at capital gains rates. Any gain attributable to use as a principal residence will remain excludable, up to the $250,000 and $500,000 limits. A formula is provided for computing the proper treatment of these gains.
  View some examples that illustrate the application of this new rule (PDF: 27K)

• Neighborhood Stabilization Program
  The Neighborhood Stabilization Program (NSP), contained in Sections 2301 through 2304 of that act, represents the first time the federal government has focused specifically on the properties and the neighborhoods impacted by the crisis. The legislation responded to mounting pressure from hard-hit areas in the Sunbelt and the Rust Belt, to help them deal with a crisis that had vastly outgrown their resources and their ability to address it.
  Download the REALTORS® and Neighborhood Recovery pamphlet> (PDF: 2M)

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