On July 30, 2008 United States President George W. Bush signed into law the Housing Stimulus Bill H.R. 3221, now dubbed the ?Housing and Economic Recovery Act of 2008?. This historic bill was previously passed in the House of Representatives by a vote of 272-152 and in the Senate by a vote of 72-13. As with most bills signed into law, this act is comprised of a multitude of compromises on a variety of housing and financial issues that have recently plagued the nation's economy. Therefore, in order to contemplate the lasting impact that this legislation will have on the nation's economy one must first examine each of its key components individually.



First, the Government Sponsored Enterprises (GSEs) known as Fannie Mae and Freddie Mac, which purchase and insure loans originated by lending institutions, have been subjected to a new federal regulator that was created to ensure the stability of these entities and the integrity of the loans they purchase. Further, the U.S. Treasury Department was authorized to make loans to and buy stock from the GSEs to ensure they do not fail. The limits on conforming loans, which are loans that can be purchased on the secondary loan market by GSEs and offer lower interest rates than jumbo loans, have been permanently set at the greater of $417,000 or 115% of the local area median home price ? capped at a maximum loan amount of $625,500. A national affordable housing trust fund was also created to hold a percentage of the GSEs? profits in order to cover the costs of defaulted loans and to ultimately be used to fund affordable housing developments across the country.

The recently increased limits on Federal Housing Administration (FHA) loans, which have low down payment requirements and attractive interest rates, have also been made permanent at the greater of $271,050 or 115% of the local area median home price. Conversely, the down payment requirement for FHA loans has been increased from 3% to 3.5% of the home price in an attempt to help guard against FHA loan defaults. In addition, down payment assistance for FHA loans will no longer be permitted by any person that has a financial interest in the sale of a home. In other words, home sellers will not be permitted to assist buyers with down payment funds.

A refinance program has also been developed to assist qualified homeowners with sub-prime loans. Lenders write down these mortgages to 85% of the current appraised value and borrowers will receive a new FHA 30 year loan for 90% of the appraised value. However, borrowers would then have to share 50% of all future appreciation of their homes? value with FHA, which is intended to offset the write downs that FHA will absorb on behalf of the lenders that held the sub-prime mortgages.

In an attempt to curb predatory lending practices, a nationwide mortgage originator licensing and registration system will be created to strengthen the state regulated systems currently in place. Increased minimum licensing and education requirements will be required of all lenders, mortgage brokers and other loan originators in an attempt to prevent fraud and protect consumers.

Qualified first-time homebuyers will also receive a tax credit of 10% of a home's purchase price up to a maximum amount of $7,500 for homes purchased between April 8, 2008 and June 30, 2009. This credit will reduce the home purchaser's tax liability for the year of purchase, and acts like an interest-free loan as homeowners will have to repay the credited amount in installments over 15 years.

The Community Development Block Grant program has also been allotted $4 billion in neighborhood revitalization funds for local communities to purchase and refurbish foreclosed homes.

Congress? efforts to craft a piece of balanced legislation are clearly visible as most provisions of the Housing and Economic Recovery Act show the give and take required for our two major political parties to sign a bill of this magnitude into law. Conservatives can be comforted that any components that resemble a government bail-out are countered by more stringent lending regulations or the recapture of government funds over time. Liberals will be assured that many of those currently struggling financially will be provided an opportunity for assistance. Only time will tell as to whether this historic act has the requisite strength to achieve its legislative intent, but in the meantime we can take solace in the fact that our democratic form of government still can work as it was initially intended.