The Obama administration's 2015 budget projects the FHA insurance fund will add $10 billion in net revenue during the course of this fiscal year. Image: Bloomberg
The Obama administration's 2015 budget projects the FHA insurance fund will add $10 billion in net revenue during the course of this fiscal year. Image: Bloomberg

President Obama's latest budget, released Tuesday, contains few surprises for the banking industry several years after the financial crisis, with the focus instead turning to education and employment in an effort to reboot the stagnating economy.

The $3.9 trillion budget request for fiscal year 2015 is designed to reinforce Democrats' focus on the middle class ahead of the midterm elections, and stands almost no chance of being signed into law. But it does provide an update on the White House's priorities, including some key measures for banking agencies and programs.

Below are four critical takeaways for financial institutions from the President's budget:

A turnaround for FHA

The Obama administration is expecting a reversal-of-fortune for the Federal Housing Administration. The agency announced in September it would need a $1.7 billion bailout, the first in its 80-year history.

But the budget predicted the FHA would have a positive year-end capital reserve of $7.8 billion and would not require another transfer from the Treasury Department to shore up its finances.

"The improved strengthen of the fund allows FHA to sharpen its focus on placing homeownership within the reach of many creditworthy Americans," Carol Galante, FHA commissioner, said on a call with reporters Tuesday.

The agency's annual actuarial report, which was released in December, also found evidence that its finances continue to strengthen. That report said the FHA's capital reserve stood at negative $1.3 billion as of Sept. 30, compared to negative $16.3 billion a year earlier, thanks to lower credit losses and higher premium revenues. (The budget estimate, by comparison, projects the agency's finances for the end of the current fiscal year.)

"The budget confirms that we should add about $10 billion in net revenues to the FHA fund during the course of this fiscal year … and that is what's really driving the improvement over the course of the year," said Shaun Donovan, secretary of the Department of Housing and Urban Development, on the media call. "I would also add that it's quite consistent with what the actuarial found last fall, which was an expectation that we would see substantial net revenues this fiscal year."

In addition, the White House budget includes additional funds for housing counseling at FHA and a proposal for the agency to collect an administrative fee to expand its efforts to effectively monitor loans.

Donovan added that he was "encouraged" by progress already being made to expand access to credit to more borrowers, an ongoing concern from many in the mortgage market.

"We are seeing early evidence — it's tentative — that lenders are beginning to remove some credit score screens that went above and beyond FHA's own standards," he said. "We are seeing in our data around FHA lending a broader group of first-time buyers that are actually getting access to credit."

A nod for affordable housing

Obama again included $1 billion in proposed spending to capitalize the National Housing Trust Fund. The affordable rental and housing program was established in 2008, but Fannie Mae and Freddie Mac, which were supposed to provide the funding, were placed into conservatorship shortly thereafter and the fund never got off the ground.

The $1 billion would "jumpstart" the fund "while we are debating housing finance reform on Capitol Hill that would more fully fund the National Housing Trust Fund and other key investments for affordable housing," HUD's Donovan said.

Obama has included a similar request in several previous budgets, but the Federal Housing Finance Agency has so far resisted calls to capitalize the fund, despite mounting pressure from advocates and some Democrats. It's possible this year could prove a turning point, with Mel Watt now directing the agency. The former Democratic congressman from North Carolina, who succeeded Acting Director Edward DeMarco in December, has been a supporter of affordable housing initiatives and is more closely aligned with the Obama administration. An FHFA spokeswoman declined to comment.

The bank tax returns

The White House has again called for a "financial crisis responsibility fee," on the biggest banks that would bring in $56 billion over the next decade to help pay down the Troubled Asset Relief Program. Last year's budget called for a bank tax that would raise $59 billion over the same period.

Obama's proposed bank fee received fresh attention last week when Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, released his tax overhaul, which included a similar provision. Camp's tax would be targeted at just a handful of the largest financial institutions and would raise an estimated $86 billion over 10 years, though unlike the Obama plan it would not be designed to expire.

Both plans have been criticized sharply by the industry and are unlikely to be enacted into law anytime soon.

Reduced funding for the CFTC

The Obama administration's budget called for a bump in funding for the Securities and Exchange Commission and the Commodity Futures Trading Commission from current levels, but some regulators suggested it didn't go far enough.

Obama proposed raising the fiscal 2015 budgets of the Securities and Exchange Commission to $1.7 billion and the Commodity Futures Trading Commission to $280 million.

While both requests represented an increase from their current funding levels, the administration has previously sought $315 million for the CFTC for the fiscal year 2014, or $35 million less than last year's budget proposal.

The proposed budget for the SEC, however, rose slightly from $1.67 billion in last year's request.

But Democratic CFTC Commissioner Bart Chilton expressed his "disappointment," arguing if the president's plan is adopted it would be "insufficient" to fund the agency at the necessary level to oversee and enforce markets.

"The agency has been woefully underfunded even as it's been given greater responsibility under the Dodd-Frank Act," he said in a press release. "The CFTC was given a large swatch of the swaps market oversight and regulation — tens of trillions of dollars in formerly dark market trading. But we have not received a commensurate increase in funding to bring needed light to these markets, despite being assigned the authority to do so by Congress. We have the mandate, but not the money, to do the job."

Chilton said that the president's budget would "fund 100 less employees than we need, 100 less than he requested last year."

"What occurred to make the mandate less needed or less important?" said Chilton. "Are we done with all of the rule writing? No. Is there less to oversee? Nah. Have all the bad actors in the financial sector cleaned up? Nope."

The Americans for Financial Reform also expressed their disproval of the budget plan arguing refusal to fund the agency adequately is " a backdoor attack on derivatives regulation."

Subscribe Now

Authoritative analysis and perspective for every segment of the mortgage industry

30-Day Free Trial

Authoritative analysis and perspective for every segment of the mortgage industry