President Bush has signed Housing and Economic Recovery Act of 2008, H.R. 3221. Following are key components of the new legislation (provided by National Council of State Housing Agencies (NCSHA).

fEmergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes (Neighborhood Stabilization Funding)

• Appropriates $3.92 billion for grants to states and localities for the redevelopment of abandoned and foreclosed homes and $180 million for housing counseling.
• Requires HUD to establish a funding allocation formula based on the number and percentage of home foreclosures, subprime mortgages, and homes in default or delinquency in each state or locality.
• Amounts appropriated will be treated as though such funds were community development block grant (CDBG) funds.  This implies 70 percent of the funds will be distributed to localities and 30 percent to states, as under the CDBG program.
• Requires all funds be used with respect to individuals and families whose income does not exceed 120 percent of area median income (AMI).
• Requires that at least 25 percent of the funds be used for the purchase and redevelopment of homes and properties that will be used to house individuals and families with incomes not greater than 50 percent of AMI.
• Requires states and local governments to give priority emphasis and consideration to areas with the greatest need, including those:  with the greatest percentage of home foreclosures, the highest percentage of subprime mortgages, and those at risk of increased foreclosures.
• Directs entities approved by HUD or the Neighborhood Reinvestment Corporation (NRC) and state housing finance entities receiving foreclosure mitigation counseling funds to identify and coordinate with nonprofit organizations operating national or statewide toll-free foreclosure prevention hotlines.

Eligible Uses

• Allows funds to be used for establishing financing mechanisms for purchase and redevelopment of foreclosed homes, purchasing and rehabilitating properties that have been abandoned or foreclosed, establishing land banks for foreclosed homes, demolishing blighted structures, and redeveloping demolished or vacant properties.
• Purchases of foreclosed homes must be at a discount from the current market appraised value of the home or property.
• Sales of these homes and properties to an individual as a primary residence must be in an amount equal or less than the cost to acquire and rehabilitate such home or property.
• Creates a five-year reinvestment period in which revenue from the sale, rental, redevelopment, rehabilitation, or other eligible use in excess of the cost to acquire and rehabilitate the home or property must be used by the state or locality in accordance with the provisions of this Act.
• No matching funds are required.
• Requires the Secretary ensure, to the maximum extent practicable and for the longest feasible term, that the homes and properties remain affordable.

Housing Counseling

• Appropriates $180 million to the NRC to remain available until September 30, 2008 for foreclosure mitigation activities.
• Requires the NRC to use $30 million of the $180 million in counseling funds to make grants to counseling intermediaries or to hire attorneys and assist homeowners with legal issues directly related to the homeowner’s foreclosure, delinquency, or short sale.

Federal Housing Finance Regulatory Reform Act of 2008 (Government-Sponsored Enterprises (GSE) Reform)

• Establishes a GSE-financed housing trust fund to provide grants to states for rental and homeownership activities targeted to extremely low-income families.  
• Requires Fannie Mae and Freddie Mac to set aside an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of its total new business purchases and to transfer 65 percent of that amount to HUD to fund the new Housing Trust Fund and 35 percent to Treasury to fund the new Capital Magnet Fund.  
• Directs all the GSE set-aside funds the first year, half of the funds the second year, and 25 percent of the funds the third year to a special fund to offset the costs of the new FHA refinancing program.Increases Fannie Mae and Freddie Mac’s high-cost area loan limits to the lesser of 115 percent of the median house price and 150 percent of the conforming loan limit, or $625,000, effective January 1, 2009.

Other Significant Provisions

New Regulator with Expanded Powers

• Creates a new, independent GSE regulator named the Federal Housing Finance Agency (FHFA).
• Gives the FHFA director banking regulator-type powers over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBs).
• Requires the director to establish criteria for the portfolio holdings of the GSEs and to establish risk-based capital requirements for the GSEs and FHLBs.
• Gives the Federal Reserve Board a consultative role in advising the new GSE regulator on capital standards and other regulations. 
• Requires each GSE to obtain initial approval from the director before offering any new product.
• Sets the conforming loan limits for Fannie Mae and Freddie Mac at $417,000 for a mortgage on a single-family home.  Allows the FHFA to adjust the limit on January 1 of each year to recognize price changes.
• Gives Treasury temporary authority to purchase obligations and securities issued by the GSEs, if the Treasury Secretary determines the action is necessary to provide stability to the financial markets, prevent disruptions in the availability of mortgage finance, and protect the taxpayer.

Affordable Housing Trust Fund

• Establishes a Housing Trust Fund to provide grants to states for use:
      To increase and preserve the supply of rental housing for extremely low and very low-income families, including homeless families; and
      To increase homeownership for extremely low and very low-income families.
• Allows states receiving grants to designate a state housing finance agency, housing and community development entity, tribally designated housing entity, or any other qualified instrumentality of the state to receive the grant funds.
• Requires the HUD Secretary to establish a needs-based formula for distributing funds to the states within 12 months of enactment of the bill.
• Establishes a minimum state allocation of $3 million.
• Requires the state or state-designated entity receiving grant funds to establish an allocation plan.
• Defines eligible activities as production, preservation, and rehabilitation of rental housing and production, preservation, and rehabilitation of housing for homeownership, including down payment assistance, closing cost assistance, and assistance for interest rate buy-downs.
• All assistance must be used to benefit very low- income families (with incomes not greater than 50 percent of area median income (AMI)) and at least 75 percent of assistance received must be used to benefit extremely low-income families (with incomes not greater than 30 percent of AMI).
• Limits state spending on homeownership activities to not more than 10 percent of total assistance provided.
• Requires state grantees to use or commit all funds within two years of when they become available.
• Requires state grantees to submit an annual report to the Secretary describing the activities funded by the grants and compliance with established allocation plans.

HOPE for Homeowners Act of 2008 (FHA Foreclosure Prevention Refinancing Program)

• Authorizes the FHA to insure refinance loans for distressed borrowers to prevent foreclosures.
• Authority goes into effect for mortgage commitments on or after October 1, 2008 and expires September 30, 2011.  
• Limits the aggregate original principal obligation of all mortgages insured to $300 billion.
• Limits mortgage amounts to not more than 90 percent of the appraised value of the property.
• Requires existing mortgage holders to accept the proceeds of the insured loan as payment in full for all indebtedness. 
• Mortgages must bear interest at a single rate that is fixed for the entire term of the mortgage and have a maturity of not less than 30 years.
• The principal obligation amount of each mortgage shall not exceed 132 percent of the 2007 FHA mortgage insurance program limit for the area in which the property is located.

Other Significant Provisions

• Restricts eligibility to mortgages on principal residences.
• Creates a Board, composed of the HUD Secretary, the Secretary of the Treasury, the Chair of the Board of Governors of the Federal Reserve System, and the Chair of the Board of Directors of the Federal Deposit Insurance Corporation, to establish program requirements and standards and to provide necessary guidance.

Requirements for Insured Mortgages

• The mortgagor must lack the capacity to pay the existing mortgage.
• The mortgagor must certify that there was not intentional default on the mortgage or other debt and that no false information was used to obtain any eligible mortgage.
• The mortgagor must have had a mortgage debt-to-income ratio, including all existing mortgages, greater than 31 percent as of March 1, 2008.
• Requires lenders to waive or forgive all penalties for prepayment or refinancing and all fees and penalties related to default or delinquency on the eligible mortgage.
• A mortgagor may not grant a new second lien on the mortgaged property during the first five years of term of the newly insured mortgage, with exceptions for second liens necessary to ensure the maintenance of property standards.  Second liens cannot reduce the value of the Government’s equity in the borrower’s home and, when combined with the mortgagor’s existing mortgage indebtedness, cause total indebtedness to exceed 95 percent of the home’s appraised value at time of the second lien.
• Establishes a 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium for all mortgages insured under this program.  
• Directs the Board to establish reasonable limits on origination fees and procedures to ensure that interest rates are commensurate with market interest rates.
• Establishes an equity-sharing system applicable if a HOPE mortgage property is sold or refinanced within five years

Mortgage Foreclosure Protections for Servicemembers

• Temporarily increases the maximum loan guarantee for Veterans Affairs-guaranteed loans to 25 percent of the higher of the applicable GSE loan limit and 125 percent of the area median price for a single-family residence (provided the amount does not exceed 175 percent of the conforming loan limit), whichever is higher.
• Directs the Secretary of Defense to develop and implement a program to advise members of the Armed Forces who are returning from service on active duty abroad on actions to take to prevent or forestall foreclosure.
• Extends, effective from date of enactment until December 31, 2010, the period a lender must wait before starting foreclosure proceedings from three months to nine months after a serviceperson returns from service.
• Suspends increases in mortgage interest rates in excess of 6 percent during the service period and for one year after a serviceperson ends his/her service.

To view the full summary from NCSHA, please click here

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, OH  and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 450 employees.  Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.