Housing and Economic Recovery Act Q&A

Q: How will the law help struggling homeowners keep their homes?

The FHA has estimated that 400,000 borrowers are in danger of losing their homes. The FHA will be able to refinance these borrowers into more affordable government-issued 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?

The program begins on October 1, 2008 and lasts through September 30, 2011. If a homeowner is worried about losing his/her home before the program starts, he/she should not wait to contact their loan service providers and need to apply for federally insured mortgages immediately.

Q: Who is eligible?

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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Take the first step toward your FHA Loan by getting in touch with a FHA Specialist.

Loan Type: Home Purchase FHA Refinance

Property State:

Q: How can a homeowner access this new program?

Homeowners need to contact an FHA-approved lender immediately. 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 pay off 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?

No. The program is completely voluntary for lenders, investors, loan service providers and borrowers.

Q: How does this law help neighborhoods that have been hit by the foreclosure crisis?

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?

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: How will this law make it more affordable to own a home?

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's 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).

    • For more information, visit the official FHA site

    Return back to the FHA Mortgage Center.com home or the FHA Lending Guide.