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The FHA “Spared” by the Sequester

The across-the-board budget cuts enacted into law in 2011 to reduce the federal deficit took effect Friday, March 1. Some $85 billion, split between defense and domestic discretionary programs, is scheduled to be cut over the balance of 2013. In all, about $1.2 trillion is to be cut over the next 10 years. Not counting the economic impact on housing demand, the cuts are expected to have minimal impact on federally backed mortgage finance programs because the sequester applies to program dollars, not loan guaranty authority. For that reason, loans backed by the FHA, the VA, and the Rural Housing Service are expected to remain at current levels. The two secondary mortgage market companies, Fannie Mae and Freddie Mac, which remain under federal conservatorship, will also likely see little impact from the sequester.

Notably, however, the automatic reductions will also affect most government programs and could result in periodic furloughs of government employees. FHA acknowledges that “furlough days could impact endorsement/claim timeframes” for FHA loans. The underlying insurance funds, funded by premiums, will not be affected by the sequester and “. . . FHA loans will be supported.”

Any furloughs at the Department of Agriculture could also slow down final processing of Rural Housing Service loans. All VA programs are exempt from the sequester. NAR is closely monitoring the situation and will update members regularly.