The proposal, which is still being finalized, could save homeowners as much as $3,000 a year, Obama said in his State of the Union speech to Congress.
“No more red tape. No more runaround from the banks,” Obama said. “A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.”
The program’s costs would be covered by a fee on financial companies with more than $50 billion in assets, according to two senior administration officials who briefed reporters on the program.
The effort targets borrowers who haven’t been able to refinance despite their good credit history, the officials said. Borrowers could benefit from mortgage rates that have fallen to historic lows, with the rate for a 30-year, fixed-rate mortgage dropping to 3.88 percent last week, according to Freddie Mac.
Unlike some existing programs that help delinquent borrowers modify their loans, the streamlined refinancing program wouldn’t be limited to loans guaranteed by Fannie Mae and Freddie Mac, the mortgage companies rescued by the government during the subprime lending collapse in 2008, said the officials.
Mosaic of Programs
The proposal, to be released in the coming weeks, is the latest addition to a mosaic of Obama administration programs aimed at boosting the housing market, which is entering its fourth year of weak sales and high foreclosures.
In October, Obama and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac (FMCC), expanded a program to let borrowers refinance regardless of how much their houses have dropped in value.
An estimated 1.6 million underwater homeowners could be helped by the change to the Home Affordable Refinance Program, or HARP, according to an analysis by Mark Zandi, chief economist for Moody’s Analytics Inc.
Obama has proposed a similar fee on financial institutions twice in the last two years. Both times the proposal wasn’t taken up by Congress.
The fee would apply to bank holding companies, thrift holding companies and broker-dealers with more than $50 billion in assets, such as Bank of America Corp. and JPMorgan Chase & Co. The administration initially proposed the fee in 2010 to recoup the costs of the 2008 Troubled Asset Relief Program, as required under the law establishing the program. Obama also included a smaller version of the fee last year in his budget. That proposal would have raised $30 billion.
In the proposal last year, “covered liabilities” would be taxed at 7.5 basis points, with more stable sources of capital taxed at a discounted rate. The fee could be deducted for corporate income tax purposes.
One basis point is equivalent to 0.01 percentage point.