Cheat Sheet: How Obama's Budget Would Affect Housing
President Obama unveiled his fiscal year 2016 budget plan on Monday, proposing additional funding for several financial agencies and defending core tenets of the Dodd-Frank Act.
The nearly $4 trillion plan proposes numerous changes to the tax code for individuals and corporations, as well as improvements to the country's infrastructure and education resources. The Republican-controlled Congress is expected to ignore most, if not all, of the president's proposals, but the budget plan remains a key barometer of the administration's priorities during Obama's final two years in office.
Below are key takeaways on what the 2,000-page budget blueprint means for the housing industry.
A line in the sand over Dodd-Frank, CFPB
Critically, Obama used his budget plan to build on his State of the Union threat last month to veto any proposals that would lead to the "unraveling" of the Dodd-Frank Act, reiterating that he will block efforts that undermine the administration's banking reforms.
The White House will "continue to oppose efforts to restrict the funding independence of the other financial regulators, including the Consumer Financial Protection Bureau, and will fight other attempts to roll back Wall Street Reform," the budget proposal says.
Republicans have long wanted to change the Consumer Financial Protection Bureau's funding process to make it subject to congressional appropriations — a move the White House has repeatedly dismissed.
But with the GOP in control of both the House and the Senate, Obama's defense of the CFPB budget is likely a preemptive strike against any new efforts to alter the agency's funding. Congress sets the budgets for the Securities and Exchange Commission and the Commodity Futures Trading Commission, but the banking regulators are independently funded. The CFPB, meanwhile, is funded by the Federal Reserve.
Critics accused Obama of folding too quickly when Republicans included a provision in must-pass spending legislation repealing a key swaps provision in Dodd-Frank, and the president has reemphasized his commitment to the financial reform law in the wake of that fight.
FHA predicts big volume boost in wake of premium cut
President Obama has made much of the Federal Housing Administration's reduction in its mortgage insurance premium, which went into effect on Jan. 26, and the budget expects to see big results.
It projects the FHA will insure $134.7 billion worth of loans in fiscal year 2015, which ends Sept. 30, down slightly from $135.1 in the prior fiscal year. Those numbers do not include the impact of the 50 basis point reduction in premiums, a FHA official said.
The impact of that can be seen in fiscal 2016, where the budget expects loan endorsements to jump 29% to $173.6 billion.
FHA has increased mortgage insurance premiums five times since the financial crisis, increasing to 135 basis points, in order to rebuild its capital reserves. But even with the recent reduction to 85 basis points, "FHA will collect premiums on new mortgages that are well above the estimated costs of guaranteeing those mortgages against default," the budget says.
The president's budget also lists several legislative proposals to strengthen FHA, all of which Congress has ignored in the past.
One of those plans would charge lenders an administrative fee to update FHA's information systems. Another proposal would give FHA the authority to seek indemnification from direct endorsement lenders that originate loans that don't meet FHA standards and go into default.
FHA expects to pay $17 billion in claims on defaulted loans in fiscal year 2015, down from $20.5 billion in the previous fiscal year.
Little action expected on GSE reform
There's little in the latest budget to suggest that the Obama administration is planning to take up the mantle of housing finance reform again in the near term.
The White House backed Senate Banking Committee efforts to pass bipartisan legislation overhauling Fannie Mae and Freddie Mac last year, but the move fell apart before reaching the chamber floor. Since then, there hasn't been much substantive chatter about another push from the administration with Congress now under GOP control.
The blueprint notes that the administration will "continue to work with Congress to pass comprehensive reform," but whether the two parties can agree on a politically viable plan to unwind the GSEs remains to be seen. It's unlikely that the White House plans to revisit the issue on its own.
The new budget report reiterates the administration position that the government-sponsored enterprises "should be wound down," and called last year's bill by former Sen. Tim Johnson, D-S.D., chairman of the banking panel, and Sen. Mike Crapo, R-Idaho, who served as ranking member, "a meaningful step" towards a new system.