Housing and Economic Recovery Act (HERA)
Candlefocus EditorHERA allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages for subprime borrowers. The FHA, which is part of the Department of Housing and Urban Development (HUD), has since become one of the most important sources of home financing for people with insufficient down payments or substandard credit scores. The FHA also insures mortgages from private lenders under certain conditions.
Additionally, HERA increased the government’s capacity to strengthen, stabilize and regulate the nation’s housing market. Through the issuance of new regulations, the FHA was allowed to set minimum down payment standards for FHA loans to no less than 3.5 percent. HERA also included new home purchase incentives, such as tax credits for first-time homebuyers, and stepped up enforcement against mortgage fraud.
HERA created a new agency, the Federal Housing Finance Agency (FHFA), to effectively supervise Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks. This agency was designed to catch and weaken predatory lending and to protect consumers from unfair and deceptive lending practices.
Lastly, HERA provided approximately $3.9 billion in financial and technical assistance to states, local governments, and Native American tribes to aid in the recovery of vulnerable housing and economic sectors. Funds were allocated to improve the infrastructure of rural communities, finance clean energy initiatives, and develop housing stability and affordability initiatives.
Overall, HERA was designed to give stability to the housing and economic markets and to protect vulnerable borrowers from unfair and deceptive lending practices. The Housing and Economic Recovery Act of 2008 is a sweeping policy that has had a lasting impact on the nation’s housing and economic landscape.