HERA Is More Than Queen of Olympian Deities

The Housing and Economic Recovery Act of 2008 (HERA) and its sub-department, Federal Housing Finance Agency (HFHA), were created in part to monitor troubled Fannie Mae and Freddie Mac agencies. Those agencies, collectively called government-sponsored enterprises (GSEs or Enterprises), came under Congressional and public fire recently for poor management. As a result, HERA and HFHA have existed for approximately one year. So far, this extensive legislation has not provided widespread homeowner relief, but has improved investor confidence, which is a precursor to offering buyers more flexible loans.

FHFA is "responsible for ensuring that the Enterprises operate in a safe and sound manner, including maintenance of adequate capital and internal controls, that their operations and activities foster liquid, efficient, competitive, and resilient national housing finance markets, and that they carry out their public policy missions through authorized activities." These are examples of two-pronged approaches benefiting buyers and providing Enterprise goals:

• Change FHA's mortgage insurance: 3.5% down payment, 3% maximum annual insurance premium.
• Prevent borrower's down payment assistance from others benefiting financially or who will be reimbursed.
• Conforming loan limits increased to $417,000 or 115 percent of comparable housing prices (up to $625,500)
• New Homeowners Program (HOPE) helps some homeowners refinance for lower and aligned with current mortgage rates 30 year fixed rate mortgages.
• Strengthen timely and improved lending disclosures for borrowers.
• New licensing program, established nationwide, generally includes both mortgage brokers and banks.
• Increased requirements to manage and maintain capital supporting Enterprise operation and goals.
• Place Enterprises in conservator-ship (FHFA assumes operational responsibility) or receivership (enterprise liquidation and negotiation of creditor claims) if attainment significantly falls below goals

HOPE (also called H4H) directly supports struggling homeowners by refinancing mortgages to those FHA-insured. Many requirements are similar to conventional mortgages of yesteryear: owner occupancy and approved borrower debt-to-income ratios.

The new provisions can help homeowners reduce the outstanding loan balance by combining all property liens, if agreement is reached by mortgagors. FHA will determine a reduced loan value, and offers it to all the property's lenders as full loan payment and waiver of all their penalties. Lenders' agreements are optional.