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Part of the Series Guide to U.S. Housing LawsAgencies and Acts
Real Estate and Lending Laws
Zoning and Occupancy
The Housing and Economic Recovery Act (HERA) was drafted to address the fallout from the subprime mortgage crisis of 2008. HERA allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers. 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) 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 subtitle acts under the main act, including the:
The goals of the Fannie Mae/Freddie Mac conservatorship include preventing the enterprises from needing another taxpayer bailout, ensuring mortgage credit availability for affordable housing and keeping the secondary mortgage market strong.
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.
This subtitle act increased the FHA loan limit from 95% to 115% of area median home price, up to 150% of the GSE conforming loan limit. 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 (HUD’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 value for distressed borrowers. Mortgage commitments made on or before Jan. 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.
FHA loans may require a higher down payment of 10% for borrowers with credit scores below 580.
This part of the act required all states to implement a mortgage loan originator (MLO) licensing and registration system by Aug. 1, 2009 (or Aug. 1, 2010, for legislatures that meet biennially). States were allowed to operate their own systems, subject to stringent federal standards, or could participate in the Nationwide Multistate Licensing System and Registry (NMLS).
Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or HUD.
The Housing and Recovery Act (HERA) addressed some of the most important shortcomings of the mortgage lending industry following the 2008 financial crisis and housing collapse. The purpose of HERA is to prevent the circumstances that could result in a repeat of the crisis, including predatory lending.
HERA was passed by Congress as part of a joint effort to support recovery in the mortgage industry and restore confidence in both Fannie Mae and Freddie Mac. HERA was signed into law by then-President George W. Bush.
The Federal Housing Finance Agency (FHFA) was established by HERA as an executive regulatory agency. The FHFA is responsible for supervising and regulating a number of entities, including Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System.
Title V of HERA mandates nationwide standards for licensing and registration of mortgage loan originators. This provision is designed to ensure that homebuyers are dealing with credible originators and lenders when seeking mortgage loans.
HERA was and is designed to promote a stable housing market for borrowers, lenders, and investors. If you own a home or plan to buy one, then HERA affects you whether you realize it or not. Being protected against predatory lending and unfair practices means that Americans can buy a home with confidence, without fearing a repeat of the 2008 housing crisis.
Article SourcesAgencies and Acts
Real Estate and Lending Laws
Zoning and Occupancy
Regulation Z is a U.S. Federal Reserve regulation synonymous with the Truth in Lending Act and includes protections for consumer borrowers.
An owner-occupant is a resident of a property who also holds the title to that property. A workout agreement renegotiates the terms of a loan to provide a measure of relief to the borrower.A principal reduction is a decrease in the principal owed on a loan, typically a mortgage, as an alternative to foreclosure on the home.
A judicial foreclosure is a legal proceeding that allows lenders to obtain a power of sale through the courts when a borrower defaults on their mortgage.
Pre-foreclosure refers to the early stage of a property being repossessed due to the property owner’s mortgage default.
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