With Congress still at odds over government funding, the nation enters day two of its shutdown, as Republicans and Democrats take to Capitol Hill and hash out a new spending package.
The impact of the shutdown is already being felt as CNN reports Office of Management and Budget (OMB) Director Russell Vought said the government can begin cutting jobs and programs, rather than just furlough workers during the shutdown.
Vought told Fox Business, “We have the authority to make permanent change to the bureaucracy here in government.”
While its unclear just how long the shutdown will remain in effect, the impact on the housing and home building markets will depend on the duration of the shutdown. A short-term shutdown will slightly impact rates and affect minimal change to the market, while a longer-running shutdown will reduce demand for housing over the next few months.
Fannie Mae and Freddie Mac, who both buy and guarantee conventional mortgages, are not funded by annual congressional budgets, so it will be business as usual for these government-sponsored enterprises (GSEs) during the shutdown. There may be minor slowdowns should Fannie and Freddie need to interact with impacted agencies, but overall operations should remain steady.
The following is a breakdown of some of the impact the housing market may feel as the housing market extends beyond day two and into the weekend.
National Flood Insurance Program
As of midnight October 1, the National Flood Insurance Program (NFIP) has officially lapsed as the Federal Emergency Management Agency (FEMA) can no longer write new or renew existing flood insurance policies, leaving nearly five million properties nationwide at-risk at the height of hurricane season. The NFIP is managed by FEMA and is delivered to the public by a network of more than 47 insurance companies and NFIP Direct. The NFIP provides flood insurance to property owners, renters and businesses, and having this coverage helps them recover faster when floodwaters recede. The NFIP works with communities required to adopt and enforce floodplain management regulations that help mitigate flooding effects. Flood insurance is available to anyone living in one of the 22,600 participating NFIP communities. Homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have flood insurance.
Most existing flood insurance policies under NFIP remain active, and include a 30-day grace period, and can be transferred to new owners. NFIP claims will continue to be paid, but uncertainty grows the longer the shutdown lasts—especially regarding how long buyers may go without coverage and how quickly FEMA’s claims paying funds could be depleted.
According to the Insurance Information Institute, the NFIP covered more than 5.7 million policies at its peak in 2009, and by 2021, that number fell to 4.95 million as private insurers began offering more comprehensive coverage.
“According to National Association of Realtors (NAR) research, 1,400 property sales each day could be forced to move forward and go bare without the protection of flood insurance depending on lender approval,” said NAR in a statement. “The risk of unnecessary NFIP lapse puts American lives, families, and properties and businesses at untenable risk and must be avoided. Extending the NFIP will ensure this crucial program remains available, providing essential insurance coverage for residential and commercial property owners, buyers, managers, renters, and tenants nationwide. We commend the House Financial Services and Senate Banking Committees for continuing to work on longer-term NFIP reauthorization and reform measures and look forward to Congress bringing some stability and predictability to this essential program.”
U.S. Department of Housing & Urban Development
In advance of the shutdown, HUD issued the “HUD Contingency Plan for Possible Lapse in Appropriations 2025,” a guide made public of how the Department will handle its affairs during the shutdown.
According to the U.S. Department of Housing & Urban Development (HUD), the following agency activities will continue during the shutdown:
- Much of HUD’s activities supporting FHA’s portfolio of insured mortgages, as well as Ginnie Mae’s work within the secondary mortgage market, which are vital to the stability and liquidity of the National economy will continue during the lapse.
- The majority of HUD’s annual grant programs, including those that provide for emergency housing for the homeless and persons living with HIV-AIDS, continue to operate in states and local communities across the country when such grant funding has already been obligated.
- Many of HUD’s programs addressing imminent threats to the health and welfare of HUD tenants and children will continue where such grant funding has already been obligated before the lapse occurs.
- Monthly subsidy programs such as the public housing operating subsidies, housing choice voucher subsidies, and multifamily assistance contracts will continue to operate for as long as the funding remains available.
Additional HUD activities impacted include:
- HUD’s Office of Single-Family Housing will endorse loans, with the exception of Home Equity Conversion Mortgages (HECM) and Title I loans, under current multi-year loan guarantee commitment authority in order to support the health and stability of the U.S. mortgage market.
- The Office of Single-Family Housing will maintain the minimum operations necessary to support FHA’s existing portfolio.
- HUD’s Office of Housing Counseling (OHC) will not have staff on board and will not process requests to draw down grant funds from the Line of Credit Control System (LOCCS).
- HUD’s Housing Counseling system (HCS) will be operational on a limited basis; however, actions that require intervention by OHC personnel will be either delayed or suspended.
- HUD’s Office of Policy Development and Research (PD&R) will maintain a minimal number of staff and services necessary to support activities addressing emergency situations where the failure to perform those functions would result in an imminent threat to the safety of human life or the protection of property.
Click here for more on “HUD Contingency Plan for Possible Lapse in Appropriations 2025.”
U.S. Department of Agriculture
Just like HUD, the U.S. Department of Agriculture (USDA) issued its own “Lapse of Funding Plan,” charting their course for agency operations in the absence of appropriations. Among the highlights and impact on the housing market:
- The Section 521 Rental Assistance Program payments from obligations before the lapse will continue.
- No new rural housing loans, grants, or loan guarantees will be committed during a shutdown. For Section 502 guaranteed loans only, lenders and borrowers can choose to proceed with closing if USDA has already issued a valid conditional commitment.
- Disbursements of construction loans and grants will continue during a shutdown.
Click here for more on the USDA’s “Lapse of Funding Plan.”
Where Do We Go From Here?
In essence, it’s up to Congress to break the impasse and solve the government shutdown. Congress provides funding for many federal departments and functions every fiscal year, which begins on October 1. When lawmakers fail to pass a package for the full year or extend funding to bridge a shorter period (a continuing resolution), federal agencies are impacted, and activities must cease until Congress appropriates more funding.
According to the Bipartisan Policy Center, there have been 14 government shutdowns not counting the current shutdown since 1980.
“Members of Congress from both parties and the executive branch must come together immediately to end this shutdown, provide transparency into all agency contingency planning, and commit to reforms that stop this cycle from repeating,” said Margaret Spellings, President and CEO of the Bipartisan Policy Center. “The stakes are too high for political brinksmanship. Americans deserve stability, accountability, and bipartisan leadership focused on the nation’s long-term fiscal and economic health.”
