Monday Morning Cup of Coffee: What a government shutdown means for housing
Monday Morning Cup of Coffee: What a government shutdown means for housing
Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.
Well, in case you didn’t hear it over the weekend (and if you didn’t, good for you for being able to fully unplug), the government shut down at 12:01 a.m. Eastern on Saturday after Republicans and Democrats were unable to come to an agreement to keep the government funded and functioning.
Both parties seem to think the shutdown is other ones’ fault, as each party’s members spent all weekend slinging blame at the other party and traded competing hashtags over which politician to name the shutdown after.
Personally, I don’t really care how we got here. Each side has their version of the truth, and neither holds much weight. Just a bunch of political posturing, which is about the only thing a lot of these elected officials are good for anymore.
I have no particular interest in assigning blame, nor do I really care which party is “at fault.” Trading pithy hashtags over what to call the shutdown is childish and a sign of how hopelessly broken this whole process is.
They broke the government (although, many would argue it’s been broken for a long time before this), and now it’s up to them to fix it…or at least to get it running again.
At this point, it’s unknown how long this shutdown will last. It could be one more day, it could be two more weeks. No one really knows.
The rest of us just have to deal with the consequences.
So, here’s the bottom line for those of us who care about the housing business: The shutdown will have an impact on the housing economy, given the prevalence of the federal government in all areas of the housing finance system.
The only question is how much impact will this shutdown have.
The last government shutdown was in October 2013, and that caused delays in about 17% of closings.
Fannie Mae and Freddie Mac will continue operating as normal throughout the duration of the shutdown, as those companies are government-sponsored enterprises and do not depend on the federal budgetary process for their money.
That’s not the case for the Department of Housing and Urban Development and the Federal Housing Administration, where operations will be somewhat affected.
According to HUD’s latest shutdown contingency plan, made available at HUD.gov over the weekend, nearly all of HUD’s employees will be furloughed during the shutdown.
The report shows that as of Aug. 1, 2017, HUD had 7,797 employees. Of those, only 289 are allowed to work while the government is shutdown. That means that approximately 96% of HUD’s workforce will be at home for as long as this shutdown continues.
In the Office of Housing, there are normally 2,506 employees. During the shutdown, there will be 86. In the Office of Fair Housing and Equal Opportunity, there are normally 484 employees. During the shutdown, there will be 2.
And over at Ginnie Mae, there are normally 143 employees, but during the shutdown, there will be 14.
Despite the skeleton crew, HUD will not shut down the mortgage pipeline.
According to the HUD contingency plan, the Office of Single Family Housing will endorse new loans, but will not endorse Home Equity Conversion Mortgages and Title I loans, under “current multiyear appropriation authority in order to support the health and stability of the U.S. mortgage market.”
But that doesn’t mean that there may not be delays in HUD’s operations, considering its considerably smaller current workforce.
Ginnie Mae will also continue to operate.
The agency released a statement Sunday stating as much.
“During a lapse in government funding, Ginnie Mae will reduce staffing to essential personnel levels. Importantly, Ginnie Mae will continue to remit timely payment of principal and interest to investors. There will also be no disruption of essential functions like the granting of commitment authority and support for continued issuance of Ginnie Mae-guaranteed Mortgage Backed Securities and REMICs,” Ginnie Mae said in a notice sent out on Sunday.
“Through its standard continuity of operations protocol, Ginnie Mae will notify issuers and other stakeholders to provide specific operational instructions and contact information for the Ginnie Mae personnel that will manage ongoing business matters that arise during this period of lapsed funding,” Ginnie Mae continued.
Here’s a short Q&A from Ginnie Mae about the shutdown:
Q: Will Ginnie Mae continue to operate during a shutdown?
A: Yes, Ginnie Mae will continue to operate if the government shuts down. Ginnie Mae’s role in the secondary mortgage market is essential to the market’s stability and liquidity and to maintaining overall economic security and has several employees and functions deemed as such. Therefore, Ginnie Mae employees will continue essential business operations under an emergency exception. Ginnie Mae will have limited staff available to manage business operations and answer questions.
Q: Will issuers be able to get commitment authority during a shutdown?
A: Yes, Ginnie Mae will continue to approve commitment authority.
Q: Can issuers continue to issue securities during a shutdown?
A: Yes, Ginnie Mae will continue to process pools and guarantee securities.
Q: Will investors still receive monthly principal and interest payments?
A: Yes, issuers will continue to make pass-through payments to investors during a shutdown, and all operations to ensure the timely payment of principal and interest continue.
Q: If there is a need for Ginnie Mae to pay out on its guaranty during a shutdown due to a shutdown, can Ginnie Mae do so?
A: Yes, Ginnie MBS carry the full faith and credit of the United States government. Even if there is a temporary government shutdown Ginnie Mae, must honor its guaranty.
And for a full read on what else happens at HUD, click here.
The Department of Veterans Affairs will also continue to guaranty loans throughout the shutdown, as seen in the VA’s contingency plan.
As noted here by the National Association of Realtors, there will be an impact on housing via the shutdown of the Internal Revenue Service.
The IRS is closed and has suspended the processing of all forms, including requests for tax return transcripts (Form 4506-T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. We have received indications that many loan originators are adopting revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506-T requesting IRS tax transcripts. On loans requiring a Form 4506-T Fannie Mae and Freddie Mac are expected to adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.
Operations at the Consumer Financial Protection Bureau will not be affected by the shutdown because the agency’s funding comes from the Federal Reserve, not through the Congressional appropriations process.
But late last week, CFPB Acting Director Mick Mulvaney made headlines by asking for no money from the Fed to fund the CFPB. Mulvaney said that the CFPB will run in the second quarter of 2018 on money from the bureau’s reserves.
From the Los Angeles Times:
“This letter is to inform you that for the Second Quarter of Fiscal Year 2018, the Bureau is requesting $0,” he wrote Wednesday to Janet L. Yellen, chairwoman of the Federal Reserve, which provides the watchdog agency’s funding.
Mulvaney said that the bureau had enough money on hand to cover its anticipated $145 million in expenses for the quarter, which began Jan. 1, and that he plans to slash the bureau’s reserve fund.
The move is the latest in a string of moves Mulvaney’s made in the last few months to change the way the CFPB operates.
Earlier this month, Sen. Elizabeth Warren, D-Mass., accused Mulvaney of actively working to “halt and weaken critical agency functions” at the CFPB by freezing the collection of personal data.
And just last week, Mulvaney signaled that he will reconsider the entire way the bureau operates by issuing a “call for evidence to ensure the bureau is fulfilling its proper and appropriate functions to best protect consumers.”
Mulvaney also serves as the director of the Office of Management and Budget, which means that he’s the one who’s in charge of actually shutting the government down when the money runs out, a fact that he apparently thinks is “cool.”
White House budget director Mick Mulvaney described it as “kind of cool” that he’s technically in charge of shutting down the government during an interview Friday.
“Obviously, I’m heavily involved in this, Sean, is that the Office of Management and Budget is charged with, you know, sort of implementing running a shutdown,” Mulvaney said on conservative commentator Sean Hannity’s radio show before the shutdown went into effect.
He added, “In fact, I found out for the first time last night that the person who technically shuts the government down is me, which is kind of cool.”
The latest word on the shutdown is that it will run through midday Monday, at least. Hopefully, the folks on Capitol Hill and over on Pennsylvania Avenue can find some common ground and figure out a way to get the government back up and running soon.
“Some common ground.” That’s a funny joke I just told.