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HUD 2011 Budget Drops to $41.6bn on Higher FHA Premiums

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The US Department of Housing and Urban Development (HUD) budget proposal for 2011 dipped 5% below the budget in 2010 to $41.6bn after raising annual Federal Housing Administration (FHA) insurance premiums by 50 bps to 2.25% earlier this month. “We announced a set of changes in FHA underwriting and risk management and a range of other areas," said HUD secretary Shaun Donovan in a conference call for the press. "One of those was raising the upfront premium by 50bps. But at the same time we said we thought it was a better long-term strategy to increase the annual premium, however we are currently at the maximum annual allowed by Congress.” He added that HUD looked into the budget for flexibility to increase the annual premium and decrease the upfront premium. As far as raising that minimum, Stevens said HUD is pursuing legislation to do so, but there are no plans for differential mortgage pricing based on credit scores. HUD projects $6.9bn in profits will be made through the FHA and Ginnie Mae loan insurance programs in 2011, bolstered by the increase in insurance premiums. “We think that would be a better way to not only serve the housing market but also to raise revenue for FHA," Donovan said. "We have already raised premiums on the upfront side. That is bringing increased receipts to FHA even before the 2011 budget goes into effect, and we will be looking to legislation to be able to adjust them.” HUD also requested $350m to launch the Transforming Rental Assistance (TRA), a new initiative to preserve 300,000 units of public housing and increase the efficiency of operation. The 13 separate rental assistance programs that already exist under HUD should streamline under the new program. "After a year of progress, we no longer confront an economy or a Department in crisis," said Secretary Donovan. "But much work remains, in much changed fiscal circumstances. Now that the economic crisis has begun to recede, President Obama has committed to reducing the federal deficit. HUD's fiscal year 2011 budget reflects that fiscal discipline.” HUD also cut funding for a number of programs, including the public housing capital fund, HOME Investment Partnerships, Native American Housing Block Grants (NAHBG), the 202 Supportive Housing Program for the Elderly, and the Section 811 Supportive Housing Program for Persons with Disabilities. In another regulatory shift, President Obama's 2011 budget proposal included a new focus under the Troubled Asset Relief Program (TARP) away from the large financial institutions and toward foreclosure prevention. To help bring down unemployment numbers, $30bn of TARP money will shift to help community and smaller banks extend lines of credit to local businesses. Write to Jon Prior.

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