The federal government shutdown has provided a great opportunity to examine some of the more obscure housing bureaucracies that most Americans have probably never heard of.
The current Beltway boondoggle is shedding light on just how bloated the federal government is, with a ballooning workforce that has sent 800,000 furloughed this week. Of course the president will continue to collect his $400,000 annual salary, and members of Congress will get their checks too.
But here are a few of the federal housing bureaucracies that are absolutely essential to the survival — and well-being — of the U.S. housing industry. Every day that the government remains shuttered a growing number of mortgage closings will be delayed, endangering an already weak housing recovery.
When borrowers apply for a loan, lenders must verify a borrower’s income from tax returns and Social Security number with the Internal Revenue Service and the Social Security Administration before a mortgage application can move forward. Furloughs at the IRS could have a big impact on closing real estate transactions. But the IRS has sent most of its employees home when Congress failed to agree on a budget on Oct. 1. Therefore, many IRS employees are furloughed and lenders are unable to process loans.
At the Federal Housing Administration (FHA), which plays a valuable role in the housing market by insuring about 30 percent of loans to first-time buyers, the staff of 3,000 is down to 64, according to the Washington Post. Like the IRS, the FHA will have a limited staff during the shutdown, slowing down FHA-backed loans and potentially slowing home sale activity.
The Department of Veterans Affairs has one of the largest payrolls (332,025). The VA, which guarantees mortgages for Americans that have served in the military, will remain open because their operations are paid for by fees charged to lenders. The same is true for Fannie Mae and Freddie Mac. Fannie and Freddie, which guarantee mortgage loans, were taken over by the U.S. Treasury Department in 2008. Senate and House lawmakers are pushing to shut down both Fannie and Freddie.
The Department of Housing and Urban Development (HUD), in a 76-page contingency plan, warned that the government shutdown will impact lenders and borrowers. Of the 9,700 HUD employees, 876 would remain. HUD said they will continue to process single-family loans, but with limited staff during the government shutdown. “An interruption in the operations would create immediate and significant market disruption that would lead to financial losses for investors and increased mortgage rates for government-insured mortgage loans,” HUD said in the plan.
The U.S. Department of Agriculture, which issues about 130,000 loans to low income borrowers particularly in rural areas annually, has shut down it loan program. Buyer pull-back and major delays are anticipated for USDA loans in rural communities.
The housing market is too unstable right now to take a political hit from an increasingly dysfunctional federal government. The federal shutdown is dishing out instability. And markets don’t like uncertainty. That could lead to fewer buyers and sellers entering the market.