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- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About HERA
We all know the great recession of 2008 and how it affected the mortgage industry. It was difficult economic times as many subprime borrowers that took out the mortgage were unable to pay their payments which lead to mass foreclosure.
Also, the property values took a dip due to most of the properties being underwater and making it difficult for the lender to recover their original principal amount.
Post that there were few measures taken by congress to avoid such a disaster once again. In this post, we will understand what is Housing and Economic Recovery Act in detail.
What Is Housing and Economic Recovery Act?
The Housing and Economic Recovery Act (HERA) was drafted to countermeasure and revive the US economy after the subprime mortgage crisis of 2008.
Housing and Economic Recovery Act prompted the Federal Housing Administration (FHA) to guarantee three hundred billion dollars in new mortgages targeting subprime borrowers.
To be eligible to participate, banks and lenders must write off loan balances up to 90 percent of their present assessed value.
The act created a new, stronger, and unified regulator for Freddie Mac, Fannie Mae, and the Federal Home Loan Banks (GSEs for housing). The various provisions of the law are likely to affect the secondary mortgage market.
For example, the authority of borrowing and investing in government-sponsored enterprises (GSEs) was given to the Secretary of the Treasury on any terms the Secretary found to be suitable.
Beginning in 2009, the maximum high-cost conforming loan limit increased to 150% of the conforming loan limit; in 2009 it was $625,500. For the first time in history, Freddie Mac and Fannie Mae entered into supervision.
On September 7, 2008, the GSEs were placed under supervision, and the Treasury Department used its new capabilities to enter into a series of arrangements that provided the GSEs with the financial aid they needed.
How Does The HERA Work?
The Prime intention of introducing the Housing and Economic Recovery Act was to restore public confidence in the loan-providing government-sponsored enterprises (GSEs) mainly, Fannie Mae and Freddie Mac.
The act created Federal Housing Finance Agency (FHFA) which permitted states to refinance subprime mortgages with mortgage bonds.
The FHFA used its newly acquired powers to place Fannie Mae and Freddie Mac into supervision in 2008. Under the Housing and Economic Recovery Act, there were some sub-acts included.
Housing Assistance Tax Act of 2008: This sub-act provides first-time buyers with a significant tax credit of 10 percent of the purchase price of residential homes, payable in equal installments over 15 years.
However, there are certain conditions attached to this, including a maximum $7,500 limit on the property purchase price. Additionally, these benefits are limited to real estate purchases made between April 9, 2008, and July 1, 2009.
Also, homebuyers with annual incomes greater than $75,000 for an individual return and $150,000 for a joint return are considered ineligible for this tax credit. However, homebuyers renovating abandoned or foreclosed homes were eligible to receive this tax credit.
FHA Modernization Act of 2008: This sub-act expanded the FHA by increasing the loan limit from 95 percent to 110 percent of the median home price. Allowing up to 150 percent of the GSE loan limit or $625,000, further required a minimum down payment of 3.5 percent to qualify for an FHA loan.
It also imposed a one-year moratorium on the US Department of Housing and Urban Development (HUD) on high-risk premiums.
This sub-act also prohibits seller financing options and allows the FHA to provide insurance coverage for up to $300 billion in 30-year fixed-rate refinance loans of up to 90 percent of appraised market value for financially distressed mortgagees.
The sub-act applies to all mortgages originated before or before January 1, 2008.
Safe and Fair Mortgage Licensing Enforcement Act of 2008: This law requires all states to establish a licensing and registration system for mortgage originators.
States can choose to operate their systems that are subject to strict federal guidelines, or they can join the Nationwide Multistate Licensing System and Registry also known as NMLS.
Conclusion
HERA was introduced to protect the interest of lenders, investors, and borrowers.
Putting all the sub-acts together, HERA helps to protect the borrowers from unfair and predatory lending practices so that borrowers can be confident about buying houses in a stable housing market without worrying about another housing crisis.
