Sequester to Stunt Recovery Plans for FHA, Cause Delays

The $1.2 trillion in spending cuts scheduled to kick in March 1, as part of the so-called “sequester,” will trim the budgets of a number of government programs. If Congress and the White House do not reach a deal on how to address these cuts, which looks unlikely as March 1 approaches, the results could mean slower recovery progress for the real estate market, and delays within the Federal Housing Administration more specifically.

In addition to cuts to housing counseling programs outlined by Department of Housing and Urban Development Secretary Shaun Donovan in mid-February, HUD will also experience the cuts all the way down to the employee level.

“Sequestration would directly affect the employees who work for HUD itself, along with their families and communities,” Donovan said in the testimony delivered February 14. “I am privileged to lead just over 9,000 HUD employees around the nation in 81 field offices around the country. Specific plans are still being reviewed and finalized, but we believe that furloughs or other personnel actions may well be required to comply with cuts mandated by sequestration.”

Those furloughs are likely to lead to fewer services available that will impact the public, Donovan said.

“The public will suffer as the agency is simply less able to provide information and services in a wide range of areas, such as FHA mortgage insurance and sale of FHA-owned properties,” he said.

On a larger scale, the sequester is likely to inhibit FHA’s insurance programs, Bloomberg News reported Thursday.

“For real-estate, the impact would be magnified because FHA’s market share has grown to five times its 2006 level as it expanded its role during the property bust. Since 2008, the FHA has backed more than a quarter of U.S. mortgages, according to HUD data,” Bloomberg reports. “…Fewer FHA loan guarantees also means lower revenue for the agency. In November, an independent audit of the FHA showed it was on shaky financial ground and could require a cash infusion from the government. A reduction in lending volume means the agency forgoes upfront fees of 1.75 percent of balances that FHA Commissioner Carol Galante has said are key to improving its finances.”

The sequester cuts are expected to trim $42.7 billion from non-defense federal agency spending.

Read the Bloomberg article.

Written by Jason Oliva

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