Housing Economic Recovery Act of 2008

To qualify for the housing assistance program, homeowners must live in their home and have loans that were issued between January 2005 and June 2007. They also must be spending at least 40 percent of their gross monthly income on all household debt. Borrowers do not have to be in default, but they must show proof that they will not be able to continue making their existing mortgage payments.

Prior to receiving an FHA-backed mortgage, homeowners must first pay off any other debt on the home, such as a home equity loan or line of credit. Borrowers also are not permitted to take out another home equity loan for at least five years, unless it’s used to pay for the necessary upkeep of a home and is approved by the FHA. Total debt cannot exceed 95 percent of the home’s appraised value at the time of appraisal.

The program is voluntary, so the original lender(s) must agree to rework the loan before a homeowner starts the application process. Each loan must be underwritten by an FHA-approved lender and will be evaluated on a case-by-case basis. Homes will be re-appraised and banks will verify income statements, bank accounts, job histories and credit scores. There will be little up-front costs for borrowers/consumers receiving a refinanced loan.

The legislation will assist an estimated 400,000 homeowners facing foreclosure, many of whom reside in California, by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. 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 $625,500. C.A.R. has long advocated for higher conforming loan limits. 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.

Here are some of the key bill provisions:

A temporary increase in mortgage revenue bonds to refinance subprime mortgages.
New regulator for Government Sponsored Enterprises (GSE) to restore investor confidence in GSE loans and help the market and economy stabilize.
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.
Temporary raise in the loan limit for the Veterans Affairs home loan guarantee program to the same level as the economic stimulus limits until the end of 2008.
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 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.
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.