Government Shutdown Affecting Housing Programs, But Not Financial Regulators

As the government shutdown drags on, some financial services programs—particularly housing programs– are being affected.

The CFPB is funded through the Federal Reserve system, not through annual appropriations, and technically is still operating, although as we have reported previously many CFPB employees are not being permitted to work. (That CFPB funding mechanism was the subject of a Supreme Court case and the court found the funding system constitutional.)

The lapse in appropriations also has not affected the federal banking agencies. The FDIC, Federal Reserve, OCC and NCUA are funded through fees paid by member institutions. They are not subject to the annual appropriations process. Therefore, they still are operating,

The federal banking agencies have urged institutions to work with customers who are having financial problems as a result of the shutdown.

The American Bankers Association said that assistance that member institutions are offering customers includes "fee waivers, loan modifications, payment deadline extensions, payroll advances, and low-rate and zero-rate loans."

House Financial Services Committee ranking Democrat Rep. Maxine Waters, D-Calif., sent a letter to financial regulators urging them to encourage the institutions that the regulate to be flexible with their customers.

"We surely agree that prudent workout arrangements that are consistent with safe-and-sound lending practices are generally in the best interests of the financial institution, the borrower and the economy," she wrote. "The individuals and
families who, through no fault of their own, face financial challenges that strain their ability to meet existing credit obligations depend on flexibility and continued access to affordable financial services and products from the financial institutions you regulate for their basic daily needs."

The Mortgage Bankers Association has released a guide to the impact the shutdown is having on specific federal agencies and departments:

Department of Housing and Urban Development

The FHA Office of Single-Family Housing will continue to endorse new loans, with the exception of Home Equity Conversion Mortgages (i.e., reverse mortgage loans), Title I loans, and loan endorsements that require assessment by an FHA underwriter (i.e., non-direct endorsements), the MBA said.

The Office of Multifamily Housing will conduct closings and endorsements for projects with Firm Commitments/Firm Approval Letters issued prior to the shutdown. The Office also will process amendments to commitments, while other requests will be handled only on an emergency basis, or if they involve the imminent threat to the safety of residents, or to the protection of property in HUD-insured or assisted multifamily projects.

Regarding HUD, the MBA also reported that:

• Lenders will continue to have access to HUD systems, but actions that require HUD personnel to respond will be delayed or suspended. That also applies to FHA Resource Centers, which will remain open to answer general questions
• FHA will continue to pay partial claims during the shutdown.
• Ginnie Mae is largely unaffected by the shutdown. It has a two-year MBS guarantee commitment authority that a lapse in appropriations will trigger with OMB's approval.
• HUD advises that:
• Endorsements that need an assessment by an FHA underwriter will not be able to be finalized, but FHA will support manual endorsement actions that lenders cannot process themselves.
• Lenders will be permitted to continue processing condominium approvals under the Direct Endorsement Lender Review and Approval Process (DELRAP).
• The Office of Housing Counseling will not have staff working and will not be able to process requests to draw down grants from the Line of Credit Control System.

Department of Veteran Affairs

The Department of Veteran Affairs (VA) Loan Guarantee Program will draw on available carryover balances from the previous year until those funds are exhausted. As a result, the program will continue its operations, for now. However, the VA notes that during a 2013 shutdown, Loan Guarantee certificates of eligibility and certificates of reasonable value were delayed.

U.S. Department of Agriculture Rural Development

The program will cease operations, according to the MBA. That includes most mortgage operations within the Single-Family Housing Guaranteed Program, "with the exception of functions approved by the Deputy Under Secretary for Rural Development to facilitate activities already in progress, such as (but not limited to) construction draws; review and processing of guaranteed loss claims; and actions necessary to support foreclosure sales."

Fannie Mae, Freddie Mac and FHLBanks

Fannie Mae and Freddie Mac are not directly affected, although as noted by the MBA there may be impacts to the extent that they rely on functions of other agencies that are affected.

The Federal Home Loan Banks also are not directly affected by the shutdown.

Internal Revenue Service

The IRS's Income Verification Express Service and Revenue and Income Verification Service have been classified as exempt activities under the Anti-Deficiency Act. The Inflation Reduction Act provides supplemental appropriations to the IRS through September 30, 2031, according to the MBA. However, the IRS updated its Contingency Plan and released it on October 8. According to press reports, the agency plans to furlough half of its staff if the shutdown continues.

Social Security Administration

MBA said it is its "understanding that in the past the SSA has not processed requests for verification of social security numbers during a government shutdown. Automation provided by eCBSV may improve outcomes."

National Flood Insurance Program

The NFIP program authorization expired on September 30. The Congressional Research Service has said that flood insurance contracts that are entered into before the expiration would continue until the end of their policy term of one year. The authority for the NFIP to borrow funds from the U.S. Treasury is reduced from $30.425 billion to $1 billion.

In past NFIP lapses, borrowers were not able to purchase flood insurance to close, renew or increase loans secured by property that required flood insurance. CRS has estimated that during a lapse in June 2010, each day more than 1,400 home sale closings were canceled or delayed. That represents more than 40,000 sales each month

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.