The Housing and Economic Recovery Act increases industry regulation and helps some homeowners at risk for foreclosure.
On July 30, 2008, the Housing and Economic Recovery Act of 2008 (“the Act”) was signed into law. The Act, Congress’s response to the mortgage meltdown of recent years, aims to:
- make sure the government-sponsored home loan agencies don’t ever run out of money
- increase regulation over the government-sponsored housing agencies and over mortgage brokers
- provide relief to a portion of the homeowners who are at risk of foreclosure, and
- assist states and localities in converting abandoned property into affordable housing.
Here’s a brief primer on the Act.
What Is the Housing and Economic Recovery Act?
The Housing and Economic Recovery Act of 2008 (H.R. 3221) is a collection of more specific acts that address issues related to the U.S. residential housing and finance industries. This collection includes:
- the Federal Housing Finance Regulatory Reform Act of 2008, which addresses structural and operational issues regarding the financing of residential real estate through the FHA and the government-sponsored home loan agencies known as Freddie Mac and Fannie Mae
- the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which creates a new bureaucracy to regulate the mortgage broker industry
- the HOPE for Homeowners Act of 2008, which creates a program under which certain homeowners will have the opportunity to refinance their way out of foreclosure if they’re able to get their original lenders to go along, and
- various subtitles allocating billions of dollars to fund foreclosure-avoidance counseling agencies, and to purchase and rehabilitate abandoned properties for the purpose of expanding the nation’s stock of affordable housing.
Here’s an explanation of some of the more important provisions of the Act for current or would-be homeowners.
Bailout of Freddie Mae and Freddie Mac
By far the most important aspect of the Housing and Economic Recovery Act of 2008 is that it places the U.S. Treasury (and its ability to print money) in the service of Freddie Mac and Fannie Mae — the two home loan banks that either own or insure at least half the loans made to U.S. homebuyers. In other words, the Act assures prospective investors and homebuyers that the U.S. home loan industry’s doors will be open for business even if the rest of the economy shuts down.
While the downside of this commitment is potentially huge — a taxpayer bailout involving many billions of dollars if the entities fail — some of the folks who purport to understand macroeconomics assure us that the risk of failure is very small. Other economic mavens aren’t so sure. All parts of our government, however, are dedicated to not letting the housing industry go bust.
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