Key Takeaways
- 2008 law to stabilize housing market crisis.
- Created FHFA to regulate Fannie Mae, Freddie Mac.
- Provided tax credits for first-time homebuyers.
- Established programs aiding foreclosure and affordable housing.
What is Housing and Economic Recovery Act (HERA)?
The Housing and Economic Recovery Act (HERA) of 2008 is a landmark federal law enacted to stabilize the housing market amid the subprime mortgage crisis. It reformed oversight of government-sponsored enterprises like Fannie Mae and Freddie Mac and introduced programs to support affordable housing and borrower relief.
HERA aimed to restore confidence in the mortgage market by creating stronger regulatory frameworks and offering tools to prevent foreclosures, impacting metrics such as loan-to-value ratios that influence mortgage risk assessments.
Key Characteristics
HERA's main features combine regulatory reform and housing market support in a coordinated effort:
- Creation of the Federal Housing Finance Agency (FHFA): Established as an independent regulator to oversee Fannie Mae, Freddie Mac, and Federal Home Loan Banks, reducing systemic risks.
- HOPE for Homeowners Program: Allowed FHA to guarantee new fixed-rate refinance mortgages, helping at-risk borrowers reduce monthly payments.
- Housing Assistance Tax Act: Provided tax credits up to $7,500 for qualified first-time homebuyers, encouraging home purchases during market downturns.
- Enhancement of Low-Income Housing Tax Credits: Boosted incentives for affordable housing development and supported community revitalization efforts.
How It Works
HERA operates by strengthening the regulatory environment around key mortgage institutions, primarily through the FHFA, which enforces prudent oversight to maintain fair market practices and protect taxpayers. This regulation improves fair value assessments of mortgage-backed securities and assets held by government-sponsored enterprises.
The act also implements targeted programs like the HOPE for Homeowners refinancing option, which enables borrowers with bad credit or distressed adjustable-rate mortgages to refinance into more stable loans. By incentivizing lenders to participate voluntarily, it helps reduce foreclosure rates and stabilize neighborhoods.
Examples and Use Cases
HERA's provisions have influenced various sectors and stakeholders in the housing and financial markets:
- Affordable housing investment: Real estate investment trusts such as Hannon Armstrong Sustainable Infrastructure Capital benefit from tax credit enhancements supporting environmentally focused housing projects.
- Mortgage bond markets: Fixed-income funds like Vanguard Total Bond Market ETF track securities affected by HERA-driven regulatory reforms, impacting investors' portfolio risk profiles.
- Commercial real estate: Companies such as Federal Realty Investment Trust operate in stabilized markets supported indirectly by HERA's foreclosure prevention and neighborhood stabilization initiatives.
Important Considerations
While HERA strengthened oversight and provided new tools, its programs like HOPE for Homeowners relied on voluntary lender participation, limiting widespread adoption. Understanding your mortgage's credit risk and loan terms remains crucial when considering refinancing options under such programs.
For homebuyers and investors, monitoring regulatory changes and tax incentives introduced by HERA can inform better decision-making in housing markets affected by these policies.
Final Words
HERA played a pivotal role in stabilizing the housing market by reforming oversight and providing targeted relief during the crisis. Review your current mortgage options to see if any provisions or similar programs can support your financial goals today.
Frequently Asked Questions
The Housing and Economic Recovery Act (HERA) of 2008 is a federal law enacted to address the subprime mortgage crisis by stabilizing the housing market, reforming oversight of government-sponsored enterprises like Fannie Mae and Freddie Mac, and providing relief for borrowers along with affordable housing support.
HERA created the Federal Housing Finance Agency (FHFA) to regulate Fannie Mae, Freddie Mac, and Federal Home Loan Banks, implemented the HOPE for Homeowners program to assist at-risk borrowers, and introduced tax incentives and programs aimed at preventing foreclosures and supporting affordable housing.
The HOPE for Homeowners (H4H) program authorized FHA to guarantee up to $300 billion in new 30-year fixed-rate refinance mortgages for subprime borrowers with loans originated before 2008, helping them refinance and avoid foreclosure between 2008 and 2011.
Yes, HERA included the Housing Assistance Tax Act, which offered a refundable tax credit of 10% of the purchase price (up to $7,500) for qualified first-time homebuyers buying homes between April 2008 and July 2009, with income limits and repayment requirements.
HERA established the Federal Housing Finance Agency (FHFA) as an independent regulator to oversee Fannie Mae, Freddie Mac, and Federal Home Loan Banks, aiming to reduce systemic risks associated with their mortgage portfolios.
HERA established initiatives like the Neighborhood Stabilization Program, National Housing Trust Fund, and Capital Magnet Fund, all designed to aid in redeveloping foreclosed properties and increasing affordable housing availability.
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) is part of HERA and was designed to curb predatory lending by setting standards for mortgage licensing and registration to protect consumers and restore confidence in the mortgage market.
