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FHA Contingency Plan in the Event of a Government Shutdown

By Erin Regan

What Does a Government Shutdown Mean for Loans Endorsed by the Federal Housing Association?

The US Department of Housing and Urban Development (“HUD”) released a modified HUDFY2013 Contingency Plan for Possible Lapse in Appropriations (“Contingency Plan”) in anticipation of the now lapsed September 30th midnight deadline for approving the 2013-2014 fiscal year budget to avoid government shutdown. This revised Contingency Plan allows for the Federal Housing Association (“FHA”) to continue to endorse single family home loans regardless of whether an agreed upon budget is passed. The government shutdown means that the FHA will now have limited staff for underwriting and approval as it must furlough 96% of its staff members in the event of shutdown. That means, of the over 9,000 current employees, only approximately 350 will be working at any given time. Lenders should anticipate serious delays for processing and approval as statistics from 2012 show that the FHA insures roughly 60,000 loans a month. Other government backed agencies, such as Fannie Mae and Freddie Mac, have already stated that their operations will continue as normal even though the government has shutdown.

What is a Government Shutdown?

A government shutdown happens when a government discontinues providing services to its citizens because Congress cannot agree on a budget by the start of the new fiscal year. The government of the United States runs on a fiscal year of October 1 through September 30th, hence why shutdowns are most often threatened in the fall. However, shutdowns are also possible at other times during the year, specifically when Congress attempts to pass a partial-year spending bill. Federal agencies must cease providing “non-essential” services to citizens during a shutdown as it is a felony under the Anti-Deficiency Act to spend taxpayer’s money without an appropriation from Congress. During a shutdown, essential services including, but not limited to, police, fire, armed forces and corrections are continued to be provided.