Landmark Housing Bill Implements Significant and Immediate Changes to Programs

October 8, 2008 — 1,422 views  
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On July 30, 2008, the president signed into law the Housing and Economic Recovery Act of 2008, H.R. 3221. This landmark housing legislation will make significant changes to a number of housing programs in an effort to stabilize the housing market. These changes will have an immediate impact on the financing and development of affordable housing projects, including projects currently in the development process.

Ballard stands ready to assist clients to determine how these changes will affect their business, and how they may benefit from the new legislation. For more information, please contact the co-chairs of Ballard’s Housing Group, Mary Jo George at 202.661.2208 / [email protected], or Paul K. Casey at 410.528.5694 / [email protected]; or Frederic L. Ballard, Jr. at 202.661.2210 / [email protected] or Frederick H. Olsen at 801.531.3034 / [email protected].

Affordable Housing Trust Funds

The act establishes two new affordable housing trust funds, a Housing Trust Fund and a Capital Magnet Fund, to be funded by a 4.2 basis point fee on all new mortgage loans purchased by Fannie Mae and Freddie Mac. The Housing Trust Fund dollars will be distributed to the states according to a needs-based formula, to be established by HUD. The states will disburse the funds based upon an allocation plan. The funds may be used for both rental and homeownership housing production, preservation and rehabilitation. Assistance must be used solely to aid low-income households with incomes not greater than 50 percent of area median income. At least 75 percent of assistance must go to households with incomes not greater than 30 percent of AMI. Spending on homeownership activities may not exceed 10 percent of the total state allotment. Treasury will manage an application process for grant awards of Capital Magnet Funds.  For a detailed summary of the Housing Trust Fund and the Capital Magnet Fund, click here.

Emergency Assistance for Abandoned and Foreclosed Homes

The act authorizes the use of $3.92 billion in funds appropriated in fiscal year 2008 for neighborhood stabilization to help states and municipalities purchase and/or rehabilitate abandoned or foreclosed properties. HUD is authorized to draft the funding formula, which will allocate these funds to the most needy jurisdictions, based upon percentages of foreclosed properties, properties financed with subprime mortgages and estimated foreclosure rates. Rules of the Community Development Block Grant program that do not conflict with the Neighborhood Revitalization requirements apply to these funds. No matching funds are required; the funds may be used to assist households with incomes up to 120 percent of AMI; and 25 percent of the funds must be targeted to households with incomes at or below 30 percent of AMI. A total of $180 million is authorized for foreclosure mitigation counseling and legal assistance for households facing foreclosure. For more detail on the programs, click here.

Fannie Mae / Freddie Mac

The act implements significant changes to the oversight and mission of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which are often collectively referred to as “government-sponsored enterprises." The legislation authorizes temporary authority for the Treasury Department to extend an unlimited line of credit to, and purchase equity in, Fannie Mae and Freddie Mac to bolster market confidence in these entities and stabilize financial markets. The legislation includes provisions that permit more homeowners to obtain conventional mortgage loans. In addition, the Housing Recovery Act also creates a new federal agency to provide oversight of the GSEs. GSE funds will be used to establish a national Housing Trust Fund and a Capital Magnet Fund. For further analysis of the provisions of the legislation affecting GSEs, click here.

FHA Modernization

The act authorizes a $25 million appropriation for FHA modernization, including funds to improve technology, processes and program performance; eliminate fraud; and provide appropriate staffing. The act also increases the FHA loan limit to the lesser of 115 percent of the local median home price or $625,500, with a floor for lower-priced markets of $271,000. Down payments must be at least 3.5 percent and there can be no seller-funded down payment assistance. For more information, click here.

First-Time Homebuyer Tax Credits

The act creates a new first-time homebuyer credit worth up to $7,500 for purchases on or after April 9, 2008, and before July 1, 2009. Taxpayers who receive the first-time homebuyer credit are required to repay the credit over 15 years in equal installments as a surcharge on the taxpayer’s annual income tax. For more information, click here.

HOPE for Homeownership

The act authorizes $300 billion to support FHA-guaranteed loans for lenders willing to write down the loan balance for single-family residential in exchange for an FHA-guaranteed loan, not to exceed 90 percent of the newly appraised value of the home. The lender will be required to pay a 3 percent FHA loan origination fee. Qualified borrowers must have a debt-to-income ratio above 31 percent on the original loan. For more information, click here.

Housing Bonds

The act amends several provisions of the Internal Revenue Code that govern housing bonds. These amendments include temporarily increasing the state volume cap allocable to qualified mortgage bonds (single-family bonds) and bonds for residential rental projects (multifamily bonds); allowing the use of single-family bonds for refinancing “subprime mortgages;” excluding single-family and multifamily bonds from alternative minimum tax; clarifying the rules for refunding a recycling multifamily bond pool; and permitting guarantees of bonds by the Federal Home Loan Banks. For more information, click here.

Housing Choice Vouchers

The act includes a number of changes to the Section 8/Housing Choice Voucher Program that will improve the program and permit it to work more cohesively with the low-income housing tax credit. The changes expand the types of properties for which project-based HCVs may be used and eliminate some duplicative and costly requirements. For more information on these changes, click here.

Low-Income Housing Tax Credits

The act makes the most significant revisions to the low-income housing tax credit  since its enactment in 1986. The revisions greatly simplify the tax credit, making it easier to use. Under transitional rules, many of the low-income housing tax credit revisions will apply to projects currently in development that will be placed in service after the legislation is enacted, therefore affecting tax credit projects currently in development. For more information on the changes to the LIHTC, click here.

Mortgage Licensing

The act creates a nationwide mortgage licensing system and registry, to be developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and supported by fees charged by the registry. For more information about the licensing requirements and registry, click here.


The act modifies regulations governing Real Estate Investment Trusts, including provisions to make investments using foreign currencies easier; a reduction in the required holding period for exemption from prohibited transaction status; and new provisions allowing greater flexibility for investment in health care facilities by REITs. For more information, click here.

Copyright 2008 Ballard Spahr Andrews & Ingersoll, LLP.  Used by permission.

Ballard Spahr Andrews & Ingersoll, LLP