President signs Housing and Economic Recovery Act of 2008
On Wednesday, July 30, President Bush signed into law the Housing and Economic Recovery Act of 2008, H.R. 3221. This sweeping legislation has broad implications for housing in general and affordable housing programs in particular, and represents the federal government’s primary response to the subprime mortgage problem and related housing crisis.
One of the most significant elements of the new law is authorization for the Federal Housing Administration (FHA) to implement a new $300 billion foreclosure prevention refinancing program to help an estimated 400,000 financially troubled home owners across the country. Under this program, the FHA will insure more secure mortgages for existing home owners with adjustable rate loans. In addition, the Act implements government sponsored entity (GSE) reform, updates various housing bond and credit provisions to promote the creation of affordable housing and allocates other funds that may allow many home owners throughout the nation and our state to avoid foreclosure.
Another important component of the Act is the establishment of a new government regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. This new regulator will ensure that these organizations, collectively known as government sponsored entities, continue to safely and efficiently support the mortgage market.
Though states will not see funds until 2010, the legislation creates a new state-administered affordable housing fund that will be financed through set-asides of Fannie Mae and Freddie Mac resources. Once HUD determines an allocation formula, these funds will be used to address the chronic shortage of affordable rental units throughout the nation.
The Act also includes a national allocation of $180 million for counseling and legal assistance for home owners already engaged in the foreclosure process. Meanwhile, $3.92 billion is reserved for neighborhood stabilization funding to help states and localities redevelop foreclosed properties. Many cities around the country have seen entire neighborhoods lost to foreclosure, and this provision of the Act is intended to assist these locations in bringing buyers into those areas to revive those neighborhoods. Under the neighborhood revitalization provision of the Act, New Hampshire should receive at least $20 million, with some estimates of as much as $49 million. These funds will be used to purchase and rehabilitate foreclosed properties.
To assist the state’s recent first-time home buyers, the new law grants credits of up to $7,500 for purchases made on or after April 9, 2008, and before July 1, 2009. During a time of economic uncertainty, this money will help new home owners; however, those who take advantage of the credit are expected to pay it back through a surcharge on their annual income tax over the next 15 years.
Many of the Act’s provisions directly affect New Hampshire as well as the endeavors of New Hampshire Housing Finance Authority and its programs. Here are some highlights:
The Act authorizes an $11 billion increase in states’ capacity to issue tax-exempt bonds to fund affordable housing programs. New Hampshire is expected to receive a one-time increase of $101 million that can only be used through 2010. These bonds are essential to the work New Hampshire Housing does. Using the proceeds from the sale of housing bonds, the Authority finances mortgages for low- and moderate-income first-time home buyers as well as the construction, acquisition and rehabilitation of multi-family rental properties for lower income families. Additional bond resources translate into the creation of more affordable housing opportunities throughout the state.
The legislation also grants temporary authority for mortgage revenue bonds to be used for mortgage refinancing. This new authority is effective through 2010 and is for otherwise qualified single-family home owners who have adjustable rate mortgages made between Dec. 31, 2001, and Jan. 1, 2008, that might result in a financial hardship. As many home owners with these mortgages, as well as a growing number of owners with fixed-rate mortgages, are facing the possibly of foreclosure, now is the time to prevent further economic distress by helping families remain in their homes.
The Housing and Economic Recovery Act also provides a 10 percent housing credit increase in 2008 and 2009, which raises New Hampshire’s allocation of low-income housing tax credits by $263,166 for 2008 alone. Using today’s equity yields, that amounts to an approximate $2.2 million increase in resources that will be used to create more affordable rental housing.
To encourage a larger pool of potential investors to purchase tax credits, the Act permanently repeals the alternative minimum tax (AMT) on housing credits for buildings placed in service after Dec. 31, 2007. Developers use New Hampshire Housing’s Low Income Housing Tax Credit Program to acquire, construct and rehabilitate affordable housing; the equity generated through the sale of tax credits to private investors greatly reduces the need for scarce, direct public subsidies. Similarly, the Act permanently repeals the AMT for all tax-exempt bonds issued after the law’s passage. It is expected that the repeal will significantly improve the market for the Authority’s bonds.
These are just a few of the numerous provisions contained within this far-reaching legislation, but the Housing and Economic Recovery Act is expected to ease economic distress while promoting the creation of affordable housing. With expanded authority for agencies such as New Hampshire Housing to refinance mortgages and the new FHA managed foreclosure prevention refinancing program, there is hope that many families will avoid losing their homes. While these programs should help ease the foreclosure problem, increases in tax-exempt bonds and credits in combination with the formation of a new affordable housing fund will encourage the creation of many affordable housing units.