Housing and Economic Recovery Act of 2008 FAQ
U.S. Department of Housing and Urban Development
www.hud.gov
August 4, 2008
Q: How will the law help struggling homeowners keep their homes?
A: Through the Federal Housing Administration (FHA), an estimated
400,000 borrowers in danger of losing their homes will be able to refinance
into more affordable government-insured mortgages. The program offers
government insurance to lenders who voluntarily reduce mortgages for at-
risk homeowners to at least 90% of the property’s current value.
Q: When will the program begin?
A: The program will begin on October 1, 2008 and sunset on September
30, 2011. Homeowners in danger of losing their homes before October 1,
however, should not wait to contact their loan servicers and should begin
applying for federally insured mortgages now.
Q: Who is eligible?
A: To be eligible to participate in this program, a borrower must:
- Have a loan on an owner-occupied principal residence. Investors,
speculators, or borrowers who own second homes cannot participate
in this program.
- Have a monthly mortgage payment greater than at least 31 percent of
the borrower’s total monthly income, as of March 1, 2008.
- Certify that he or she has not intentionally defaulted on an existing
mortgage, and did not obtain the existing loan fraudulently.
- Not have been convicted of fraud.
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Q: How can a homeowner access this new program?
A: Homeowners or a servicer of an existing eligible loan need to contact an
FHA-approved lender. The FHA-approved lender will determine the size of a
loan that a borrower can reasonably repay and that meets the requirements
of the program. If the current lender or mortgage holder agrees to write-
down the amount of the existing mortgage and make the new loan
affordable, the FHA lender will payoff the discounted existing mortgage.
Loans provided under this program must be 30-year fixed rate loans.
Q: Are lenders required to participate in this program?
A: No. The program is completely voluntary for lenders, investors, loan
servicers, and borrowers.
Q: How does this law help neighborhoods that have been hit by theforeclosure crisis?
A: The impact of the current crisis has not been isolated to individual
borrowers or investors, but has been felt broadly by neighbors,
communities, and governments across the nation. The law strengthens
neighborhoods hit hardest by the foreclosure crisis by providing $3.9 billion
in Community Development Block Grants to states and localities to buy
foreclosed homes standing empty, rehabilitate foreclosed properties, and
stabilize the housing market.
Q: Will this law be a bailout for speculators, homeowners, investors,
and lenders?
A: No. It is narrowly tailored to keep families in their homes. For example:
- Only primary residences are eligible: NO speculators, investment
properties, second or third homes will be refinanced.
- Investors and lenders must take big losses first in order even to
participate. The owner of the old mortgage can get a maximum of
90% of the current value of the home (which presumably will be
considerably less than the value of the original loan). In many cases
the loss will be significantly greater, but 10% is the minimum.
- In addition, lenders must waive any penalties or fees, and help pay
for the origination and closing costs of the new loans.
- Most homeowners will have seen the equity in their homes disappear
before being able to refinance under this program. In addition, the
FHA will get a portion of any future profits on the house, to make sure
the government recoups its investment over the long run.
Q: Will this law reward families who bought homes they could notafford?
A: Many homeowners facing foreclosure were misled, were deceived, or
were in other ways the victims of unfair lending practices. To prevent future
abuses by lenders, this law will establish a nationwide loan originator
licensing and registration system to set minimum standards for all
residential mortgage brokers and lenders. It also strengthens mortgage
disclosure requirements to help ensure that borrowers understand their
mortgage loan terms.
Q: How will this law make it more affordable to own a home?
A: There are a number of provisions that will make homeownership more
affordable:
- Creates a refundable tax credit for first-time homebuyers that works
like an interest-free loan of up to $7,500 (to be paid back over 15
years) .
- Grants states $11 billion of additional tax-exempt bond authority in
2008 that they can use to refinance subprime loans, make loans to
first-time homebuyers and to finance the building of affordable rental
housing.
- Raises conforming loan limits for the FHA, Fannie Mae and Freddie
Mac to $625,500. Because of the high cost of housing in California, a
majority of the state IS residents were previously shut out from these
programs. Raising these loan limits will lead to lower interest rates on
some loans, greater refinancing opportunities, and enable more
borrowers in high cost areas to avoid the type of nontraditional and
frequently abusive loans that led to the current crisis.
- Provides couples using the standard deduction with up to an
additional $1,000 deduction for property taxes ($500 for individuals).
Q: Does the law provide help to those who still cannot afford to own a
home?
A: Yes. The bill includes a number of provisions to increase the supply of
affordable housing, which has been a major problem in California pre-
dating the current foreclosure crisis. For example:
- The bill creates a new permanent affordable housing trust fund -
financed by Fannie Mae and Freddie Mac and not by taxpayers – to
fund the construction, maintenance and preservation of affordable
rental housing for low and very low-income individuals and families
nationwide in both rural and urban areas.
- In addition, the legislation provides a temporary increase in the Low-
Income Housing Tax Credit and simplification of the credit to help put
builders to work to create new options for families seeking affordable
housing alternatives.
Fact Sheet:
The President has signed into law legislation that will allow HUD’s Federal
Housing Administration (FHA) to continue providing targeted mortgage
assistance to homeowners. The Hope for Homeowners program will
continue FHA’s existing and successful efforts to provide aid to struggling
families trapped in mortgages they currently cannot afford. Under the
program, certain borrowers facing difficulty with their mortgage will be
eligible to refinance into FHA-insured mortgages they can afford. The
program will be implemented on October 1, 2008.
Homeowners May Already Be Eligible For Assistance
Families should not wait to seek mortgage relief. Right now, homeowners
can determine if they are already eligible for mortgage assistance through
FHASecure, FHA’s existing refinancing program. They can obtain
information through any of the following options:
1. Contact a local, HUD-approved housing counseling agency at
www.HUD.gov;
2. Contact the HOPE NOW Alliance at (888) 995-HOPE; or
3. Call FHA at (800) CALL-FHA.
Sustainable. Affordability Homeownership
Hope for Homeowners maintains FHA’s long-standing requirement that
new loans be based on a family’s long-term ability to repay the mortgage.
FHA only allows owner-occupants to be eligible for FHA-insured
mortgages. Borrowers must also meet the following eligibility criteria:
- Their mortgage must have originated on or before January 1, 2008;
- Their mortgage debt-to-income must be at least 31 percent;
- They cannot afford their current loan;
- They did not intentionally miss mortgage payments; and
- They do not own second homes.
Features of FHA-insured loans under the new program include:
- 30-year, fixed rate mortgage;
- Maximum 90 percent loan-to-value ratio;
- No prepayment penalties;
- $550,440 maximum mortgage amount;
- Extinguishment of any subordinate liens; and
- New home appraisals from FHA-approved appraisers.
HUD, Treasury, FDIC and the Federal Reserve will form the
Congressionally-mandated Board of Directors and work together to
establish additional program standards.
Voluntary Lender Participation
FHA will continue to offer lenders an alternative to foreclosing on
borrowers. Similar to FHASecure’s recent expansion, lenders will be
encouraged to write-down the outstanding mortgage principal balances to
90 percent of the new value of the property. In many cases, reductions in
principle will cost lenders less than the losses associated with foreclosure.
Market Stability and Liquidity
By continuing to slow the rate of foreclosures, this program will support
FHA’s existing effort to stabilize local housing markets. From September
2007 to June 2008, FHA has guaranteed more than $93 billion of mortgage
capital.
Funding .
FHA will insure up to $300 billion in new loans. Borrowers will pay an
upfront premium of 3 percent of the original mortgage amount and an
annual premium of 1.5 percent of the outstanding mortgage amount. Any
additional costs incurred by FHA will be reimbursed by Fannie Mae and
Freddie Mac.
Program Timeline
The program will last from October 1, 2008 through September 30, 2011.
Since September 2007, FHASecure has helped more than 290,000 families
obtain safer, more affordable mortgages. FHASecure is on pace to help
500,000 families by the end of the year.
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
