On Friday morning, President Donald Trump, who presided over the longest government shutdown in United States history, told reporters at the White House that the Democrats “are crazy” and if the government “has to shut down, it’ll have to shut down. But they’re the ones that are shutting down.” House Democratic Leader Hakeem Jeffries (D-N.Y.) was no less bellicose, telling Punchbowl News, “they spent the whole year telling America they have a massive mandate to do whatever the hell they want, and now they want to act like Democrats are somehow responsible for their continued efforts to destroy the American way of life? No one’s buying that.” He added that the Democrat leadership in the House and Senate have “been preparing for a government shutdown showdown for months.”
In this high stake game of chicken, we’ve had near misses before, and it’s still possible that a short term continuing resolution could be enacted. However, that temporary reprieve looks increasingly unlikely, and even if it occurs, the two sides are so far apart an October shutdown appears inevitable. The Senate won’t be back in session until Monday, September 29, and the House won’t resume its work until Tuesday, September 30.
The impact of a protracted shutdown on all Americans will be profound, and the impact on housing, in the midst of a major housing affordability crisis, will be severe. Even after the dispute is fully resolved, the ability of Federal agencies to administer programs could be undercut. Agencies are already significantly understaffed following previous mass firings and the deferred resignation program, also known as the “fork in the road” offer. Employees who accepted that offer will be officially separated from the federal government on September 30. Earlier this year, HUD experienced significant reductions in its workforce and the Consumer Financial Protection Bureau has effectively been shut down. The U.S. Department of Veterans Affairs’ (VA) and U.S. Department of Agriculture’s (USDA) mortgage programs have also experienced meaningful staff cuts, resignations, and retirements. As a result, there are already reports of significantly longer approval timelines for FHA multifamily deals, VA voucher approvals, and more.
Now, the Office of Management and Budget (OMB) is threatening that Federal workers won’t just be furloughed, as in the past, but may be subject to a Reduction in Force that would permanently eliminate their positions. While it is unlikely the threat will be carried out immediately, there’s no telling how these odds would change over the course of a protracted impasse.
As we prepare for a long siege, it’s important to keep in mind that we have been here before and housing leaders across the country have meaningful experience upon which to draw. Agencies generally follow a set procedure when facing a shutdown, and activity and “excepted” staff (those permitted to work during a shutdown) will be kept to an absolute minimum. Efforts to support renters will be harder than in the past, however. In 2019, over one thousand project-based, §202 (seniors), and §811 (disabled) rental contracts were unable to be processed during the shutdown. No one was evicted at that time, but had the shutdown continued for a few more weeks, the widespread fears of eviction could have been realized.
FHA’s single-family loan endorsements were largely unaffected, but there were delays for multifamily loans. FHA, Fannie Mae, and Freddie Mac instructed mortgage servicers to treat federal workers and contractors like victims of a natural disaster in order to prevent foreclosure.
According to the National Association of Housing and Redevelopment Officials, HUD officials indicated their intent to follow the 2023 contingency plan for a possible lapse in appropriations. That plan has since been removed from the official HUD website (archived here). In prior shutdowns, reduced staff led to delays in funding, deal processing, and related activities. The 2023 plan noted, “A limited number of the activities normally supported by the Federal government are ‘excepted’ from shutting down during a lapse in appropriations. These activities meet a very strict legal standard for protecting life and property to continue.” Given OMB’s recent memo, it is unclear whether the same procedures will be followed in this shutdown.
In the 2023 plan, FHA noted that it would be unable to respond to and process most incoming correspondence during a shutdown, which includes submissions of FHA test cases, Housing Residential Approval Packages, Name and Address Identifier requests, and more. For FHA single family loan endorsements, a significant impact is not expected during a brief shutdown. A protracted shutdown, however, could mean delays in processing or closing FHA insured loans. This could put pressure on home sales. FHA has stated it is unable to endorse Home Equity Conversion Mortgages during a shutdown or insure Title I loans. Other loans from lenders with Lender Insurance should not be immediately impacted, subject to available commitment authority. The list of excepted work for the Office of Housing/FHA can be found here.
According to Ginnie Mae’s 2023 plan, market-critical functions including issuing commitment authority, processing new pools and securities, processing monthly principal and interest payments, engaging in any potential Issuer defaults, acting on its guarantee, and more are excepted. However, with diminished staff capacity, those activities may be delayed.
For the Office of Public and Indian Housing, the 2023 plan said that previously obligated public housing program and Indian housing program funds could be drawn down unless they require further action or review from HUD “except in those cases where there is an imminent threat to lives or property.” For the Housing Choice Voucher program, HUD’s 2023 plan said, “payments will be disbursed to Public Housing Authorities so long as available funds were previously obligated” with limited exceptions, and that previously obligated amounts in HUD-held reserves may be requested or automatically disbursed “to address emergency situations such as families at risk of termination.”
The VA’s contingency planning page and FAQs do not provide as much detail, including on vouchers or mortgage lending. It does state that “VA benefits will continue to be processed and delivered, including compensation, pension, education, and housing benefits.” USDA’s contingency plan for the Rural Development (RD) division notes that in preparation for a shutdown, Servicing Office staff will review all Single Family Housing foreclosure and Real-Estate Owned property pending actions to ensure these properties are secured, and a status of pending actions, such as foreclosure sales and property preservation needs, will be developed. All pending foreclosure sales must be reviewed to ensure excepted RD staff will be available as needed to support these actions. It also notes that Multifamily Housing collections will be received and reconciled as part of collection and tenant certification activities, and that beginning on the 30th calendar day of a funding lapse, RD will ensure adequate staff are available to disburse Rental Assistance payments.
The political calculus for both sides always centers on who will be blamed the most, and what is gained for the price paid. It’s tricky math, and often miscalculated. Rep. Steve Womack (R-Ark.), Chairman of the Transportation and Housing and Urban Development Subcommittee of the House Appropriations Committee, noted in a recent interview, “If you’re a Democrat — even just like a mainstream Democrat — your predisposition might be to help negotiate with Republicans on a funding mechanism. Why would you do that if you know that whatever you negotiate is going to be subject to the knife pulled out by Russ Vought? That’s a challenge for us.” The threat of future OMB recissions despite resolution of congressional funding is a new factor.
Ultimately, no one wins a government shutdown, and it’s the American people who ultimately pay the highest price. Americans who depend on vital government services, federal workers who perform them, and taxpayers who ultimately will foot the bill for this costly show-down stand to lose the most.
NHC will continue to monitor the funding situation. If a shutdown does occur, we will be in touch with the Administration and our members to understand and communicate the impacts on federal housing programs, the market, practitioners, borrowers, and renters.