The automatic spending cuts that are in effect will have a devastating impact on the housing market, specifically cutting $3 billion of aid to those impacted by Hurricane Sandy, warned Secretary Shaun Donovan of the U.S. Department of Housing and Urban Development

Taking such a dramatic budget cut will reverse industry recovery as well as the improvement the housing market has made, the secretary cautioned during an interview on Andrea Mitchell Reports on MSNBC.

"That would mean 10,000 homes or small businesses wouldn’t get assistance, it’s a substantial impact but it’s not the only impact," Donovan says at 47 seconds.

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He added, "We’re still recovering from the economic disaster of our housing crisis and my agency through the Federal Housing Administration is responsible for about a quarter of all new loans for homeowners and rental apartments. With that slowdown in processing there, there’s a risk that the recovery we’ve seen over the last year in the housing market is going to put at risk." 

Similarly, President and CEO John Taylor of the National Community Reinvestment Coalition stated that the sequester will have a negative impact on housing, pushing "underserved populations" – veterans, seniors and low income households – further into distress.

"There are a lot of people who don’t have a lot of resources that are very needy in terms of the government support that they receive. The sequester for us is taking those who already have a tremendous amount of angst and unhappiness in their life and then basically given them another kick in the butt," Taylor said.

He added, "They’re just already worried enough about making ends meet by the end of the month and trying to get by when the response to the economic crisis is to push them further into the role of being responsible in having to pay for what were really mistakes at very high levels by the private sector."

On Feb. 14, Donovan sent a warning to lawmakers when discussing the impact the sequestration could have on homeowners, noting that automatic spending cuts could result in 75,000 fewer household receiving foreclosure-prevent aid along with rental and counseling services through HUD.

While not all of the budget cut effects will be felt at once, the effects will build over time, which makes the long-term outcome worse for households. 

For instance, HUD assists about 125,000 individuals and families through the Housing Choice Voucher Program to help with rent payments. Each month that a housing authority waits to decide to implement those cuts, they have to add another family to the list of those cut from assistance, 

"The longer they go, they fewer months of savings there are, the more families they have to cut off so the effects will be felt immediately. There are families on the line here," Donovan said.

Furthermore, Donovan noted that President Obama fought hard on Friday to put together a $60 billion package that would provide some relief to the cuts. While Congress could not come to an agreement, the secretary stated that there is a solution.

"All we have to do is close loopholes in our tax code, all we have to do is ask that everybody pays their fair share including the wealthiest in the country. We shouldn’t let families that have been hit by a hurricane, we shouldn’t let veterans who have served our country end up being put back on the streets, they shouldn’t be the only ones feeling the impact and that’s what the president has put forward," Donovan said.