What the Shutdown Reveals About U.S. Housing Priorities

Leading up to the federal shutdown that began at midnight Sept. 30, there was a lot of speculation about what that would mean for various housing and community development programs. […]

Leading up to the federal shutdown that began at midnight Sept. 30, there was a lot of speculation about what that would mean for various housing and community development programs.

It’s not surprising that many were concerned about how a government shutdown would affect the housing market recovery. It’s also not surprising that many of the programs supporting homeownership remain unaffected.

So where are we at now, and what does it tell us about the priorities of our housing system?

For starters, the secondary mortgage market is still functioning without major interruption, with both Fannie Mae and Freddie Mac swiftly issuing guidance on how lenders can continue to package loans for sale to them. Despite being in government receivership, these two GSEs remain private enterprises with no direct federal appropriations (although they did borrow from the U.S. Treasury in the midst of the mortgage meltdown, and are actually paying it back).

Beyond temporarily relaxing some criteria requiring data that is unavailable right now (such as U.S. Census data), and for borrowers affected by mandatory furloughs, Fannie and Freddie have hardly blinked.
State housing finance agencies, another major player in mortgage finance for first-time homebuyers, are also adeptly and temporarily adapting their criteria for lenders that participate in their single-family mortgage programs, such as this example from Minnesota Housing.

These programs are funded through private investment in tax exempt bonds which are repaid by the mortgage revenue streams from the funded properties, so remain unaffected by the lack of federal funds.

The most concern remains over how the shutdown will affect potential slow-downs in processing FHA-insured mortgages targeting low and moderate income homebuyers.

The FHA generally insures around 60,000 mortgages per month. While loan processing continues as long as funding remains sufficient, staffing for the entire HUD Office of Housing is reduced to around 2 percent.

Compared to these efforts to keep homeownership afloat, most of HUD’s other programs – primarily supporting rental housing and assistance—are in jeopardy come the end of October. These programs rely on direct budget authority, and most available appropriations run out at the end of this month.

Around 4 percent of HUD employees are expected to continue working full-time throughout the shutdown, and their focus will be on programs with unspent appropriations and those critical to protecting life and property. This means programs like the Housing Choice Voucher program and a variety of other project-based rental assistance programs, many of which rely on the active participation of private property-owners, landlords, and/or lenders, could be seriously undermined when appropriated funding runs out in several weeks.

Programs serving the homeless and persons with AIDS are considered essential to protecting the livelihoods of these populations, and remain in operation, but construction draws or inspections on rental housing for the elderly (Section 202) and disabled (Section 811) are suspended through at least Oct. 10, according to HUD’s contingency plan.

There are some silver linings, if you can call them that. The Low Income Housing Tax Credit program used to garner private equity in multifamily rental housing development should continue unscathed as it relies on tax expenditures filed through the Internal Revenue Service rather than any HUD budget authority. Other programs that are also decentralized to state and local governments for administration are considered too critical to halt, including politically popular block grants such as the Community Development Block Grant.

But reading between the lines, it is clear that affordable rental housing receives the short end of the stick…again:

  • Existing project-based Section 8 contracts may expire without renewal;
  • Multifamily projects under construction may have funding stall, or may be allowed to draw down funds without required quality inspections;
  • Voucher holders may lose their homes if their landlords do not receive the contracted supplemental rent payments from HUD;
  • Some local public housing authorities may run out of funds at the end of the month.

While protecting the most vulnerable populations remains HUD’s priority, poor households continue to lose out most during the shutdown, particularly those dependent on quality rental housing units. What does this tell us about our nation’s housing priorities? It provides further evidence that housing programs serving the most vulnerable remain the most vulnerable.

(Photo by Vijay Gunda CC BY-NC-SA)

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