The Housing and Economic Recovery Act of 2008: What Does it Mean for You?

The Housing and Economic Recovery Act provides assistance to those facing foreclosure.

Last week President Bush signed into law The Housing and Economic Recovery Act. Most people know that the act is designed to help Fannie Mae and Freddie Mac, as well as help homeowners who are facing foreclosure. But the new law reaches much farther than that. It includes provisions for a first time homebuyer’s tax credit, an update to the FHA loan program, help for our nation’s veterans, and much more.

Does The Housing and Economic Recovery Act affect you? Here are the key changes enacted by the new legislation.

The HOPE for Homeowners Act

The HOPE for Homeowners act will make it possible for certain homeowners to refinance their existing mortgages with a 30 year, fixed-rate FHA loan of up to 90% of their home’s value. The conditions of the HOPE for Homeowners act are:

  • Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31% of their monthly income on their mortgage, and are currently in danger of foreclosure.
  • The program is completely voluntary. Your bank may elect not to participate.
  • If you sell your home after you refinance, you will have to split the equity earnings with the FHA, on a sliding scale basis.
  • The program begins on October 1, 2008 and ends in September 20011.

Communities Devastated by Foreclosures will Receive Assistance

Congress will make available $3.92 billion in block grants for communities hit hard by foreclosures. The block grants will be used to buy empty, foreclosed homes and rehabilitate them, so other property owners in the area aren’t devastated by a significant loss in property value.

Families in Need will Receive Foreclosure Counseling

$180 million will be made available to provide families in need with pre-foreclosure counseling. Additionally, $30 billion will be made available for legal services to help those facing foreclosure.

Our Nation’s Veterans Will Receive Assistance

In order to prevent foreclosure for veterans returning from overseas, The Housing and Economic Recovery Act of 2008 makes provisions to help our veterans. Highlights of this section of the act include:

  • increasing the amount of time a veteran must be home before foreclosure proceedings begin from 3 months to 9 months.
  • providing a 1 year relief from increasing mortgage interest rates, after a soldier returns home.
  • ensuring access to financial counseling for active duty soldiers and veterans who need it.
  • increasing the VA loan guarantee amount, so more veterans can purchase homes.
  • increasing benefits for disabled veterans to make necessary accessibility modifications to their homes.
  • providing a moving benefit for those military personnel facing a forced move from rental housing, because the landlord is being foreclosed upon.

The FHA Program Will Be Updated

With FHA being the primary loan program people are using to buy new homes right now, the program will receive some necessary updates to make home ownership more accessible to those in areas where housing prices are high.

  • The FHA loan limit is increased from 95% to 110% of the median home price in the area.
  • The cap is set at 150% of the GSE limit, currently $625,000.
  • Home buyers will be required to put at least 3.5% down on a home.
  • Counseling requirements will be enhanced for new home buyers.
  • After October 1, 2008 the FHA will no longer insure loans in which the borrower’s downpayment is paid for by the seller (ie. gifting programs such as Nehemiah and Ameridream).

New Requirements in Place for Mortgage Disclosures

Mortgage lenders will be required to present potential homeowners/those refinancing their loans with disclosures within 3 days of applying for a loan on some types of loans. Disclosures will also be required no later than 7 days before closing, so buyers can shop for a new mortgage, if they don’t like the terms. Lenders are also required to inform potential borrowers of the maximum mortgage payment possible under the loan.

Standard Property Tax Deduction Available for Non-Itemized Tax Returns

Currently, only those homeowners who itemize their tax deductions are able to deduct state and property taxes on their federal return. The Housing and Economic Recovery Act of 2008 will create a standard deduction of $500 for single filers, and $1000 for married taxpayers who own their homes, but do not itemize their tax deductions.

Tax Credit Available for First Time Home Buyers

I use the term “tax credit” lightly, because it’s really a loan. First time homeowners will be able to take a $7500 tax credit (or 10% of the purchase price of the home…whichever is lower) on their 2008 returns, which must be paid back, interest free, over the course of 15 years. Here are the details:

  • First time homebuyers (those who have not owned a primary residence for 3 years prior to their home purchase) who purchase their home between April 9, 2008 and July 1, 2009 will be eligible for the tax credit.
  • Singe taxpayers with modified gross incomes up to $75,000 and married taxpayers with a joint modified gross income of up to $150,000 are eligible for the full $7500. Above those incomes, the tax credit begins to phase out.
  • This is a tax credit, and not a tax deduction, meaning that it is a dollar for dollar reduction on taxes owed, as opposed to a tax deduction, which reduces the amount of your adjusted gross income that can be taxed.
  • The credit is refundable, meaning if you owe $2000 in taxes and take the $7500 credit, you will receive at $5500 refund.
  • The credit must be repaid to the government over 15 years or when the house is sold. For those taking the tax credit in 2008, the first $500 payment would need to be made when the buyer files their 2010 tax return.
  • This tax credit is basically an interest free loan.

There are more aspects to The Housing and Economic Recovery Act of 2008, but these are the main areas where consumers will see the effects of the act.

We will be eligible to take the first time homebuyer’s tax credit, though I’m not sure if we’ll do it. Will you be affected by the new housing act?

Photo by respres.

20 thoughts on “The Housing and Economic Recovery Act of 2008: What Does it Mean for You?”

  1. I closeed on my home on April 1, 2008. Is there any way I can still quilify for the credit?? Why was April 8 selected as the starting point??

  2. This is the second time that a tax credit has been used to correct an over supply of homes for sale. It worked in 1975 when the tax credit was $2000.I believe the tax credit section of H.R.3221 can accomplish the intended result which is to reduce the supply of homes and stabilize pricing.

    To Amiyrah who posted on Aug. 4th: First, thanks for your service to our great country. Are you aware that you can use your military status to obtain a 100% VA loan and receive the $7500 tax credit? Invest the intrest free money.

    To jon who posted on Aug. 4th. I can’t disagree with much you said but the number one cuilprit was the federal reserve who left rates too low for too long. Greenspan has admitted that he didn’t see what was comming and should have raised rates sooner.

    To Lisa who posted on Aug.5th. I agree with you 100%. I don’t like bailing out people who made poor choices. I don’t think this new law will help that many of them. I think the banks will dump their worst loans on the FHA but the borrower will still have to qualify for the loan. The banks have no incentive to take a 10% hit on a mortgage that isn’t delinquent and the stockholders, who really own those mortgages, probably won’t tolerate it. After all the program is voluntary. On the other hand if the tax credit does what it is intended to do which in part is to stabilize pricing the benefit will reach much further than those who made bad choices. It will help everyone whose home value has and is declining regardless of the type loan they have. I guess if we have to help a few people who made bad choices to benifit those who didn’t it is probably worth it.

  3. I guess I purchased my house too soon! I purchased in January so I am not eligible for the $7500 loan. Not that I really need the loan, and I purchased what I could afford, it would be nice to hold in an account earn interest and have available if something major happened to my house.
    Also the part about the non-itemized tax deduction, why is it more for a joint filer? I wonder about many of the joint filer benefits. Why am I not able to get the $1000 on mine if my house is of the same value and I earn under $75k than a married couple, what difference is there?

    Thanks for posting this, and making it clear, I will be looking closer into it.


  5. @SaintMary – I totally missed mentioning that I’m in favor of helping our veterans out! Thanks for bringing that to my attention. Especially in a situation where you were medically discharged. I’m all for helping people who paid attention, but due to circumstances beyond their control are having trouble. I just don’t think the legislation as a whole does that very well. There are pieces of it that help, but I don’t like the overall package.

    Thank you for serving our country, and I hope that part of this legislation is able to help you keep your home. It’s a sad thing when we don’t take care of those who put their lives on the line for our country.

  6. I am a veteran medically discharged within this last year. I am a single parent and on the verge of losing my home to foreclosure. Itemizing taxes has nothing to do with loosing your home to forclosure. The issue is to save someones home and making homeownership available to new homebuyers and assist those who have lost there homes. Some of us did pay attention and if you cann’t be supportive to the situation save your comments.

  7. I just can’t wait to see everyone default on the $7500 loan. Who was the idiot who came up with that one….lets loan more money to delenquent consumers.

  8. I have very mixed feelings about this whole mess. On the one hand I am all for helping veterans. The rank and file of the armed forces make far too little for what they are asked to do and are generally given much too little support after service.

    I am also glad to help out those who were taken advantage of by unscrupulous lenders.

    On the other hand, shouldn’t people be accountable for their own mistakes? No one came and bailed us out when we lost a ton in the stock market because we had our money in the wrong sector. Nor would we expect them to. It was the risk you take when you buy stock. Your mortgage going up is the risk you take when you sign up for an adjustable rate loan. Why should my tax dollars (and the tax dollars of my children and grandchildren) pay for someone else making bad choices?

  9. If you think about why we are in this position, it is the mortgage brokers and ceo’s of the subprime lenders. I was a mortgage broker, alot of us made alot of money, but I didnt cause I was honest. I think the ceo’s should be fined in some way to pay back part of the bailouts. I had seen loans approved that I bet would be ulitimately forclosued upon. I did primarirly good loans, but subprimes will always happen. There should be no subprime loans over 70% LTV!!!

  10. I am a CPA who is in the tax return business. In terms of the credit for purchase of a new home, it seems to me that if one can be disciplined enough to set the credit amount aside in a separate interest earning account, (and not touch it), taking the credit would make sense. However, when a credit is repayable over 15 years, it boggles the mind as to all of the mistakes that can be made. I haven’t yet read the actual law, but what if one of the owners dies, or they get divorced? And who is going to keep track of all of this, anyway? Only the most organized people have their tax records for the last 17 years.

  11. I am wondering if that standard tax deduction works if one has NO mortgage and no interest… hmmmm…. All those years when I didn’t have enough deductions to itemize… oh, well – just glad I had no big medical deductions I needed to take – guess that’s the bright side of it!

    Happy to see some relief for the veterans :)

  12. I’m thinking about buying my first home and got excited when I first heard about the homebuyer’s credit. Sadly, it seems so complicated that I’d probably need to start seeing a tax professional if I did decide to use it and, as a loan, it’s not that helpful to me. *sigh* I really wish the politicians would call it what it is.

  13. I agree with everyone who says this doesn’t seem too useful. There are aspects of the new legislation that I like….the tax credit for those who don’t itemize and the FHA overhaul…but most of it seems like excess expenses that will only get the U.S. into a deeper financial hole.

  14. What this package means to me is that the people who were responsible and bought houses they could afford with sensible mortgages will be stuck bailing out a limited number of people who bought more house than they could afford or who speculated that prices would continue to rise and they could sell at a profit. It also means that, like the stimulus package, our children and grandchildren will be paying the debts that the government is incurring now.

  15. As a veteran and potential first-time buyer, i’m liking the new aspects of the law that pertain to me. I think the best part for veterans is the fact that foreclosures will be postponed until the servicemember has been home 9 months. It is very difficult to get back into “civilian” living once you get back from overseas, and having to worry about a mortgage that fell behind while you were away makes it even worse. Other than those aspects, I didn’t see too much of a great difference.

  16. Thanks for the 411. I didn’t know about the non-itemized tax deduction. We own our home but haven’t been able to itemize our deductions because we do not have enough interest, taxes, etc. to itemize. That’s one of the drawbacks we learned when we used to pay down extra to our mortgage. We then refinanced our mortgage when I decided to be a SAHM and was able to decrease our mortgage payment (incl escrow) from $1100 to $675 (now pay our own taxes and insurance).

  17. Like most other government handouts, this smacks of some people getting wealthy by taking advantage of the rules and the people that need the help will not receive that much from this bill.

  18. boy most of that doesn’t really seem useful.
    One thing–the government shouldn’t be buying foreclosed houses–that won’t help anyone. There are already lots of folks who want to do that–and this could hurt that little pocket of entrepreneurship. Another thing- who owns a mortgaged house and doesn’t itemize?? Sometimes I wish regular folks could afford to be elected to congress cuz the rich folk in there have no clue.

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