The Housing and Economic Recovery Act of 2008

The new housing rules that Pres. Bush signed contain more than 700 pages of labyrinthine provisions aimed at stimulating the housing market and fighting the foreclosure trend. Included is help for first-time home buyers, members of the military and those facing foreclosure, plus some pitfalls for builders and vacation home owners.

This lobbyist-laden bill is already befuddling some. One provision even has a subsidy for rail-cars. Kudos to syndicated financial columnist Kathleen Pender for digging that tidbit out of the mountain of paper!

All pork aside, I want you to be clear on the bill's key points. Below, I break them down in plain English. Note that many of these provisions will not take effect until Oct. 1, 2008.

• If you're delinquent on your primary residence, you may be eligible for a workout -- funded by taxpayers -- in the fall. This voluntary measure will allow lenders to write down loans to current market value plus 10%. So let's look at the example of a $150,000 home that's now worth $120,000. The lender has the option to mark it down to $120,000; take a further haircut to $108,000; and then write a new loan for that amount. The homeowner must then split the profits with taxpayers upon eventual resale. This is a completely voluntary provision that lenders are not required to do, but may opt to do. Contact your lender for details.

• As a first-time home buyer, you can get a $7,500 credit courtesy of taxpayers. This is essentially a loan, which you as a borrower get interest-free. You pay it back over time interest-free, and it is retroactive for those who bought from April 9, 2008 onward. There's also an oddball loophole that allows non-first-timers to qualify for the credit. Former homeowners who recently have been renting for a couple of years may be eligible.

• Down-payment assistance programs will no longer be legal. These programs allowed builders to raise the price of a house, say, from $100,000 to $105,000. Then the builder would make a $5,000 donation to a supposed charity. That charity would in turn give you $5,000 toward the home. The end result was that it looked like you had a $5,000 down-payment when you really did not. But the rate of foreclosure involved here was extremely high.

• Reverse mortgages will now have a 2% maximum on fees (1% for mortgages above $200,000) -- with a cap at $6,000. This is good news for "house rich, cash poor" seniors contemplating a reverse mortgage. It should reduce the number of people getting ripped off with huge fees.

• Interest rate rescue for those in jumbo loans is on the way. Fannie Mae and Freddie Mac will be allowed to buy loans up to 115% of the local median home price. That means access to lower interest rates for those in loans above $417,000.

• There will be new protection for active military and veterans against foreclosures. Lenders will be required to wait 9 months -- instead of 90 days -- before beginning proceedings. Plus, there are new rules on interest rate adjustment. For too long, banks had unwittingly violated laws on interest rates for military. Visit Military.com to learn your rights.

• Vacation homes will be the subject of new scrutiny. No more loopholes about avoiding capital-gains taxes by living in a vacation or rental property as a primary residence for 2 years before selling it. Now you may owe tax on a portion of the gain, based on the years you didn't live there full-time.