To respond to the depressed real estate/mortgage industries and record loan defaults across the nation, our federal government decided it was time to slow the bleeding with the passage of H.R. 3221, the “Housing and Economic Recovery Act of 2008.” The Act passed the House on July 23, was approved by the Senate July 26, and signed into law by President Bush on July 30, 2008. Some of the highlights of the bill include:

FHA Reform – The permanent FHA loan limits are now the greater of $271,050 or 115% of local area median home price, however FHA loans are capped at $625,500. There is now streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The minimum down payment requirement on FHA loans is increased from 3 to 3.5%. The effective date for reforms is immediate upon enactment, but the loan limits will go into effect on January 1, 2009.

FHA foreclosure rescue – H.R. 3221 provides a refinance program for homebuyers with problematic subprime loans. In this program, lenders write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440. The FHA Foreclosure Rescue Program is effective on October 1, 2008.

Seller-funded downpayment assistance programs – Prohibits the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition is effective October 1, 2008.

VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

Homebuyer Tax Credit - a $7500 tax credit is available for any first time buyer purchase between April 8, 2008 and June 30, 2009. The first time buyer is defined as not having owned one’s home the past 3 years. The credit is repayable over 15 years (making it, in effect, an interest free loan).

GSE Stabilization – Authorizes the Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.