Table of Contents

Housing and Economic Recovery Act (HERA): Overview, History, FAQ

By

Adam Hayes

Updated June 12, 2022

Reviewed by

Chip Stapleton

Fact checked by

Amanda Jackson

Part of the Series

Guide to U.S. Housing Laws

Agencies and Acts

Real Estate and Lending Laws

Housing Discrimination

Zoning and Occupancy

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. 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.

Key Takeaways

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.
HERA 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 Licensing Act.
HERA established minimum down payment standards for FHA loans.

Understanding the Housing and Economic Recovery Act (HERA)

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:

Housing Assistance Tax Act of 2008
FHA Modernization Act of 2008
Secure and Fair Enforcement for Mortgage Licensing Act of 2008

Important

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.

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 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.

Important

FHA loans may require a higher down payment of 10% for borrowers with credit scores below 580.

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 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.

What did the Housing and Economic Recovery Act (HERA) do?

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.

Who created HERA?

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.

What agencies does the Federal Housing Finance Agency (FHFA) regulate?

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.

What is Title V of HERA?

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.

The Bottom Line

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 Sources

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Congress.gov, U.S. Congress. “H.R.3221 — Housing and Economic Recovery Act of 2008.”
U.S. Department of Housing and Urban Development. “Let FHA Loans Help You.”
George W. Bush White House Archives. “President Bush Signs the Clean Boating Act of 2008 and the Housing and Economic Recovery Act of 2008 Into Law.”

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