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What is the Housing and Economic Recovery Act (HERA)?

The Housing and Economic Recovery Act (HERA) of 2008 was a pivotal piece of legislation that aimed to address the devastating consequences of the subprime mortgage crisis. In response to the crisis, HERA empowered the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed-rate mortgages specifically for subprime borrowers. This article will provide an overview of the HERA, its historical significance, and address frequently asked questions surrounding its provisions.

Understanding the Housing and Economic Recovery Act (HERA):

HERA was enacted with the primary objective of restoring public confidence in government-sponsored enterprises (GSEs), particularly Fannie Mae and Freddie Mac. Additionally, the legislation sought to mitigate the adverse effects of the subprime mortgage crisis by implementing measures aimed at stabilizing the housing market and revitalizing the economy. HERA encompassed several sub-statutes, including the Housing Assistance Tax Act, the FHA Modernization Act, and the Secure and Fair Enforcement for Mortgage Licensing Act.

Key Provisions of HERA:

  1. Housing Assistance Tax Act of 2008: Under this section of HERA, qualified first-time homebuyers who purchased their principal residences between April 9, 2008, and July 1, 2009, were eligible for a refundable tax credit equal to 10% of the purchase price, up to $7,500. However, the credit phased out for individuals with incomes exceeding $75,000 ($150,000 for joint returns). Repayment of the credit was required through annual income tax surcharges over a 15-year period. Additionally, this act provided emergency assistance for the redevelopment of abandoned and foreclosed homes.

  2. FHA Modernization Act of 2008: The FHA Modernization Act aimed to strengthen the FHA's role in the mortgage market. It increased the FHA loan limit to 115% of the area median home price, up to 150% of the GSE conforming loan limit. A down payment of 3.5% became mandatory for all FHA loans, and a 12-month moratorium was imposed on the implementation of risk-based premiums by the U.S. Department of Housing and Urban Development (HUD). The act also authorized the FHA to insure up to $300 billion in 30-year fixed-rate refinance loans for distressed borrowers, covering 90% of the appraised value. Mortgage commitments made before January 1, 2008, were eligible for coverage.

  3. Secure and Fair Enforcement for Mortgage Licensing Act of 2008: This section of HERA required all states to establish a mortgage loan originator (MLO) licensing and registration system by August 1, 2009, with stringent federal standards. States had the option to operate their own systems or participate in the Nationwide Multistate Licensing System and Registry (NMLS), subject to federal guidelines.

FAQs about HERA:

  1. How did HERA impact the housing market? HERA aimed to stabilize the housing market by allowing the FHA to guarantee a significant amount of new mortgages for subprime borrowers. This measure provided increased access to affordable loans and helped restore confidence in the housing sector.

  2. What was the significance of the FHA's role in HERA? HERA elevated the FHA's importance in the mortgage market by expanding loan limits and implementing down payment requirements. These changes aimed to strengthen the FHA's ability to support homeownership and mitigate risks associated with subprime lending.

  3. Did HERA have any long-term effects? While HERA provided short-term relief during the subprime mortgage crisis, its long-term impact was debated. Some argue that the legislation helped stabilize the housing market and prevent further economic downturn. However, others believe that fundamental structural changes were necessary to prevent similar crises in the future.


HERA was passed in 2008 in response to the subprime mortgage crisis that rocked the entire economy and left many Americans underwater on their mortgages.

People would need to refinance their mortgages and this bill approved the funding to help that happen. The Housing and Economic Recovery Act did several things, all aiming to help American consumers and lending institutions get out of the recession left by the subprime mortgage bubble in 2008.

Millions of Americans had seen the value of their homes pared down significantly, and discovered that they were underwater on their mortgages. HERA approved up to $300 Billion in insurance coverage for new refinanced 30 year mortgage loans. The bill was designed to keep borrowers afloat and also to salvage Fannie Mae and Freddie Mac and to restore their credibility.

There were about six main subtitles to the act, all of which had a different focus. One part of the act made it possible for states and municipalities to issue mortgage revenue bonds (MRBs) that would raise capital that the state’s housing finance agency could use to help state banks and lending institutions make new mortgage loans.

It restructured several parts of the landscape including creating the Federal Housing Finance Agency by melding two older institutions.

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