WASHINGTON — The Obama administration's 2011 budget proposal would rework how Federal Housing Administration premiums are charged, calling for increasing the annual premium on such loans to as much as 90 basis points, but allowing the agency to drop its up-front premiums to 1%.
The plan also reiterated calls for a new tax on large institutions, but provided few new details on the plan.
The FHA, whose market share has markedly increased during the financial crisis, has a statutory cap on its annual premiums, which are currently set at 0.5%, but has been increasing its up-front premiums to account for the rise in riskier loans. Last month, FHA Commissioner David Stevens announced he was reluctantly increasing the up-front premium by 50 basis points, to 2.25%. Stevens said, however, that he would lower such premiums if Congress gave his agency more leeway on annual premiums.
Under the budget proposal, FHA will be able to charge annual premiums of 85 basis points for most loans, but could charge an additional 5 basis points for mortgages with the lowest down payments. If granted such authority, up-front premiums would drop to 1%, the budget said.
The budget also called for a 15 basis point "financial crisis responsibility fee" on banks, thrifts, bank holding companies, insurance and other depository institutions with more than $50 billion in assets. The tax would be charged on a firm's liabilities for at least 10 years or longer if necessary to recoup $90 billion in losses from the Troubled Asset Relief Program.
The administration previously said the government-sponsored-enterprises and the auto companies, which are expected to yield losses, will not be required to pay the tax. Banks had contended it was unfair the tax was directed at them when they were returning Tarp capital with a profit to the government. But in the budget, the administration defended targeting financial firms.
"The largest Wall Street firms have been both the source of extraordinary costs throughout the economy due to their excessive risk-taking, and the beneficiaries of the extraordinary measures taken to prevent a deeper financial crisis," the budget said. "While the expected cost of the Tarp program has fallen by $224 billion since the 2010 mid-session review to about $117 billion, shared responsibility requires that the largest financial firms pay back the taxpayer as a result of the extraordinary action taken."
The budget made no mention of another recent administration proposal, the Volcker Rule. Under that proposal, commercial banks would be banned from proprietary trading and from working with hedge funds or private-equity firms. The president also proposed curbing growth by imposing a hard cap on any one banking company's share of the market for nondeposit liabilities.
The budget endorsed allocating $30 billion in Tarp funds for community banks to spur small business lending, but provided no further details on the plan.
The budget also noted that as of November 30, 2009, more than $27 billion has been committed to implement the Home Affordable Modification Program, the administration's much-criticized loan modification effort. "The 2011 budget reflects a total of $48.8 billion in Tarp program activity expected through the Hamp," the budget said.