Housing and Economic Recovery Act of 2008
Encyclopedia
The Housing and Economic Recovery Act of 2008 (commonly referred to as HERA) designed primarily to address the subprime mortgage crisis
. It authorized the Federal Housing Administration
to guarantee up to $300 billion in new 30-year fixed rate mortgage
s for subprime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. It was intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding. States are authorized to refinance subprime loans using mortgage revenue bonds. Enactment of the Act led to the government conservatorship of Fannie Mae and Freddie Mac.
on July 24, 2008 and signed by President George W. Bush
on July 30, 2008.
, which was signed into law by President Obama on February 17, 2009.
(FHFA) out of the Federal Housing Finance Board
(FHFB) and Office of Federal Housing Enterprise Oversight
(OFHEO).
Through the powers granted to FHFA, created by the Act, on September 7, 2008, FHFA director James B. Lockhart III
announced he had put Fannie Mae and Freddie Mac under the conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades".
The Act provided emergency assistance for the redevelopment of abandoned and foreclosed homes.
is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration
(FHA).
The Act:
As of February 2009, only 451 applications had been received and 25 loans finalized, far short of the estimated 400,000 homeowners who were expected to participate. This was attributed to high fees, high interest rates, the need for a reduction in principal on the part of the lender, and the requirement that the federal government receive 50% of any appreciation in value of the house. Congress began hearings on the program in February.
The SAFE Act was intended to provide uniform licensing standards nationwide, as these licensing standards had been non-uniform from state to state for the past 20+ years. It was also designed to create a comprehensive licensing database so that all relevant information on MLO's will be centralized and publicly available. This should allow consumers to perform research, obtain unbiased professional information, and help them choose professionals with whom to deal. Especially, it will aid them in identifying and avoiding bad actors. Eventually, it is hoped, widespread consumer use of the Registry will drive dishonest and incompetent MLO's out of the mortgage loan origination business entirely..
Upon registration, MLO's are provided with a Unique Identifier number. All MLO's and their employers are required to provide this unique identifier to anyone who requests it, and the federally-chartered mortgage institutions, Fannie Mae and Freddie Mac, require that it be placed on all loan documents for loans that they purchase. Consumers will be able to use this number to obtain basic information on any registered MLO. This information includes name and aliases, employment history, current employment and contact information, negative civil judgments or settlements, and disciplinary and criminal history.
The Act and the implementing regulations, which were issued jointly by the federal banking agencies in 2010 (12 Code of Federal Regulations III,section 365.101, et seq.), define a "mortgage loan originator" as any individual who both takes residential loan applications and "offers or negotiates" residential mortgage loan terms. Additionally, the individual must undertake these activities for economic gain (i.e., get paid for it). Persons who perform merely clerical or administrative tasks in connection with loan origination are not considered MLO's. The terms, "taking a mortgage loan application" and "offering or negotiating terms" are defined very broadly so that just about any person in the underwriting process who has more than cursory contact with a potential borrower is an MLO. Mortgage loans include financing and refinancing transactions, reverse mortgages, home equity lines of credit and just about any other credit transaction secured by a first or junior lien on a dwelling.
Not all persons who qualify as Mortgage Loan Originators are required to become licensed or to register with the newly renamed Nationwide Mortgage and Licensing System and Registry ("the Registry"). Licensed Realtors and MLO's who work for federally-regulated financial institutions, for example, are not required to be licensed as MLO's, although they are required to register. Those who would otherwise be required to register are exempted if they have (1) never been registered before and (2) perform five or fewer mortgage loan originations in any rolling twelve-month period. Registration must be renewed annually, and registrants must submit fingerprints for a criminal background check along with their first registration application.
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
. It authorized the Federal Housing Administration
Federal Housing Administration
The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...
to guarantee up to $300 billion in new 30-year fixed rate mortgage
Fixed rate mortgage
A fixed-rate mortgage is a mortgage loan first developed by the Federal Housing Administration where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float." Other forms of mortgage loan include interest only...
s for subprime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value. It was intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding. States are authorized to refinance subprime loans using mortgage revenue bonds. Enactment of the Act led to the government conservatorship of Fannie Mae and Freddie Mac.
Legislative history
The Act was passed by the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
on July 24, 2008 and signed by President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
on July 30, 2008.
Subsequent amendments
Some provisions of the law were modified by the American Recovery and Reinvestment Act of 2009American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.To...
, which was signed into law by President Obama on February 17, 2009.
Federal Housing Finance Agency
The Act also established the Federal Housing Finance AgencyFederal Housing Finance Agency
The Federal Housing Finance Agency is an independent federal agency created as the successor regulatory agency resulting from the statutory merger of the Federal Housing Finance Board , the Office of Federal Housing Enterprise Oversight , and the U.S...
(FHFA) out of the Federal Housing Finance Board
Federal Housing Finance Board
The Federal Housing Finance Board was an independent agency of the United States government established in 1989 in the aftermath of the savings and loan crisis to take over oversight of the Federal Home Loan Banks , and was superseded by the Federal Housing Finance Agency in 2008.The FHFB...
(FHFB) and Office of Federal Housing Enterprise Oversight
Office of Federal Housing Enterprise Oversight
The Office of Federal Housing Enterprise Oversight was an agency within the Department of Housing and Urban Development. It was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises—the Federal National Mortgage Association and the...
(OFHEO).
Through the powers granted to FHFA, created by the Act, on September 7, 2008, FHFA director James B. Lockhart III
James B. Lockhart III
James B. Lockhart III assumed the position of Vice Chairman of WL Ross & Co. LLC in September 2009. WL Ross manages $9 billion of private equity investments, a hedge fund and a Mortgage Recovery Fund. It is a subsidiary of Invesco, a Fortune 500 investment management firm...
announced he had put Fannie Mae and Freddie Mac under the conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades".
Housing Assistance Tax Act of 2008
Included a first-time home buyer refundable tax credit for purchases on or after April 9, 2008 and before July 1, 2009 equal to 10 percent of the purchase price of a principal residence, up to $7,500.- Phased out the credit for taxpayers with incomes over $75,000 ($150,000 for joint returns).
- Required taxpayers receiving the credit to repay it over 15 years in equal installments by imposing a surcharge on the taxpayers’ annual income tax.
The Act provided emergency assistance for the redevelopment of abandoned and foreclosed homes.
FHA Modernization Act of 2008
An FHA loanFHA loan
An FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they...
is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration
Federal Housing Administration
The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...
(FHA).
The Act:
- Increased the FHA loan limit from 95 percent to 110 percent of area median home price up to 150 percent of the GSE conforming loan limitConforming loanIn the United States, a conforming loan is a mortgage loan that conforms to GSE guidelines.In general, any loan which does not meet guidelines is a non-conforming loan...
, or $625,000), effective January 1, 2009. - Required a down payment of at least 3.5 percent for any FHA loan.
- Placed a 12-month moratorium on U.S. Dept. of Housing and Urban DevelopmentUnited States Department of Housing and Urban DevelopmentThe United States Department of Housing and Urban Development, also known as HUD, is a Cabinet department in the Executive branch of the United States federal government...
implementation of risk-based premiums. - Prohibited seller-financed down payments.
- Allowed down payment assistance from family members.
Federal Housing Finance Regulatory Reform Act of 2008
HOPE for Homeowners Act of 2008
- Authorized the FHA to insure up to $300 billion of 30-year fixed rate refinance loans up to 90% of appraised value for distressed borrowers.
- Covered mortgage commitments made on or before January 1, 2008.
- Required existing mortgage holders to accept the proceeds of the insured loan as payment in full for all pre-existing indebtedness.
- Lender participation in this program was not required but voluntary.
As of February 2009, only 451 applications had been received and 25 loans finalized, far short of the estimated 400,000 homeowners who were expected to participate. This was attributed to high fees, high interest rates, the need for a reduction in principal on the part of the lender, and the requirement that the federal government receive 50% of any appreciation in value of the house. Congress began hearings on the program in February.
Mortgage Disclosure Improvement Act of 2008
Secure and Fair Enforcement for Mortgage Licensing Act of 2008
"Secure and Fair Enforcement for Mortgage Licensing Act" (12 United States Code, Section 5100, et seq.), passed by Congress and signed by President G.W. Bush in 2008, required all states to implement a Mortgage Loan Originator (hereafter: "MLO")licensing and registration system by August 1, 2009 (August 1, 2010 for legislatures that meet biennially). States can operate their own systems, subject to stringent federal standards, or they can participate in the Nationwide Mortgage Licensing System and Registry (hereafter: "the Registry"), a service operated jointly by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators (CSBS/AARMR). If the state's licensing and registration program does not meet minimum standards at any time, the U.S. Department of Housing and Urban Development (HUD) is empowered to step in and impose a compliant system upon the state.The SAFE Act was intended to provide uniform licensing standards nationwide, as these licensing standards had been non-uniform from state to state for the past 20+ years. It was also designed to create a comprehensive licensing database so that all relevant information on MLO's will be centralized and publicly available. This should allow consumers to perform research, obtain unbiased professional information, and help them choose professionals with whom to deal. Especially, it will aid them in identifying and avoiding bad actors. Eventually, it is hoped, widespread consumer use of the Registry will drive dishonest and incompetent MLO's out of the mortgage loan origination business entirely..
Upon registration, MLO's are provided with a Unique Identifier number. All MLO's and their employers are required to provide this unique identifier to anyone who requests it, and the federally-chartered mortgage institutions, Fannie Mae and Freddie Mac, require that it be placed on all loan documents for loans that they purchase. Consumers will be able to use this number to obtain basic information on any registered MLO. This information includes name and aliases, employment history, current employment and contact information, negative civil judgments or settlements, and disciplinary and criminal history.
The Act and the implementing regulations, which were issued jointly by the federal banking agencies in 2010 (12 Code of Federal Regulations III,section 365.101, et seq.), define a "mortgage loan originator" as any individual who both takes residential loan applications and "offers or negotiates" residential mortgage loan terms. Additionally, the individual must undertake these activities for economic gain (i.e., get paid for it). Persons who perform merely clerical or administrative tasks in connection with loan origination are not considered MLO's. The terms, "taking a mortgage loan application" and "offering or negotiating terms" are defined very broadly so that just about any person in the underwriting process who has more than cursory contact with a potential borrower is an MLO. Mortgage loans include financing and refinancing transactions, reverse mortgages, home equity lines of credit and just about any other credit transaction secured by a first or junior lien on a dwelling.
Not all persons who qualify as Mortgage Loan Originators are required to become licensed or to register with the newly renamed Nationwide Mortgage and Licensing System and Registry ("the Registry"). Licensed Realtors and MLO's who work for federally-regulated financial institutions, for example, are not required to be licensed as MLO's, although they are required to register. Those who would otherwise be required to register are exempted if they have (1) never been registered before and (2) perform five or fewer mortgage loan originations in any rolling twelve-month period. Registration must be renewed annually, and registrants must submit fingerprints for a criminal background check along with their first registration application.