The Housing and Economic Recovery Act

Posted on October 16th, 2008 by saman

Many cities are experiencing a sharp rise in home foreclosures, and congress felt it was time to do something about it earlier this year. Their response was to pass the Housing and Economic Recovery Act, which approved the sale of tax-exempt bonds which would fund refinancing for homes in trouble. Many states have taken advantage of the act and have taken up the bonds to help their local communities.

While it may help some families save their homes from foreclosure, it is not going to be the answer for everyone. Most programs that are set up have rules that eliminate a lot of struggling homeowners from even being considered.

For example, take Tennessee’s new “Great Save” program. The intended purpose is to take struggling homeowners in adjustable rate loans and allow them to refinance into 30 year fixed rate loans with an interest rate of 5.8 percent. That would be a dream for many homeowners, but a lot of them will not qualify due to the rules to be enforced.

The basic rules are that the homeowner must have good credit and must have a down payment or equity in the home. It is also not for people who are already in foreclosure but do not have a foreclosed home. The aim is to find people who may be in trouble when their rates adjust and help them get into better terms before that happens. Anyone already in trouble will have to look into other options.

People who have poor credit will not be a fit for this program because of how the process works. The homeowner must secure a loan from through an approved lender, who in turn sells the loan to the Tennessee Housing Development Agency. People who have been behind on their payments and are already in trouble with their mortgages will not likely be able to secure the loan from approved lenders.

The Great Save program also has required caps for appraised value of the homes and the owner’s income. For example, a two person home in Davidson County will have an income cap of $61,600 and an appraised value cap of $226,100. The figures will be different for different counties, but this gives an approximate idea of the range of people the program is intended to help.

While it may sound like anyone with decent credit and equity in their home could use this as a simple way to refinance for a lower interest rate, there is a requirement that the homeowners prove their financial difficulty. Hardship can be proven through involuntary loss of income, such as someone losing a job that normally pays the bills, or proof of an unaffordable mortgage, including those with a high interest rate on the current loan.

While the program is not going to prevent people already in the throws of losing their home from suffering the foreclosure process, it should help some people who may be headed in that direction the next time their rates adjust.