If Congress Fails to Raise Debt Ceiling, FHA Lending Could See Sudden Halt

If the government fails to come to debt limit terms, it could cost the mortgage industry—in a big way.

If the debt limit is not raised through government action by the deadline of August 2, the Federal Housing Administration, as a “non-essential” government agency, could go on hiatus as part of an overall government shutdown, according to a Center for American Progress report.

In the report, titled “Federal Debt Freeze Disaster Looming for Housing Market,” author David Min, associate director for financial markets policy at the Washington, D.C.-based think tank, indicates that an FHA shutdown would eliminate potential homebuyers, cause significant delays for everyone else, and would exacerbate an already struggling housing sector.

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Without FHA, there would be few to no loans insured by the government agency, including the 99% of reverse mortgages it currently insures, thus it could have major implications for reverse mortgages.

When asked for confirmation that FHA could shut down under the potential debt limit circumstances, the Department of Housing and Urban declined to comment for RMD.

Whether the debt ceiling will be raised has been a topic of widespread speculation in recent weeks as President Obama has met with republican and democratic leaders to tackle the debt ceiling problem. If the ceiling is not raised before the deadline, a government shutdown would ensue.

Min says that FHA is a relatively low priority when it comes to items on the federal government’s list of expenses, and if FHA faces a freeze resulting from the debt issues, there will be very little activity for lending.

“Lenders make the loan knowing they can get FHA insurance,” Min told RMD. “What will happen is that if FHA shuts down, the approval process will be delayed as long as it is shut down. [Lenders] may see some FHA-qualifying loans happen during that period, but there’s limited capacity.”

Taken a step further, another potential outcome of a government debt default could be a change in the HMBS market.

“If government really defaulted on debt, it would remove some of the benefit to HMBS since it would get traded lower relative to other mortgage securities not backed by the federal government,” says John Lunde, president of Reverse Market Insight, noting that a default scenario is extremely unlikely. In theory, however, “[It] might close a bit of the gap with potential proprietary products, but there’s still a long way to go there. And this is the single worst way to close that gap I can think of.”

In the most recent debt talks in Washington, President Obama’s said he would oppose any short-term agreement in an effort to get past August deadline. Additionally, he said Republicans opponents will have to concede on revenues.

Written by Elizabeth Ecker

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  • I would like to express my feelings over the whole debt ceiling debates. First off, I am ashamed of both parties over this fiasco! First off, on the subject of social security. We have seniors around the country who are scared to death. They have no idea what is in store for them. Many have only social security to look forward to as their only means of survival. Seniors have not seen an increase in their social security in two years and who knows if one is on the horizon. Yet they see congressmen and senators getting raises.

    If FHA has to shut down because the two sides can’t work out a deal that will be to the benefit of the American people, this will put the reverse mortgage in the line of fire once again!
     
    What about some common sense method’s of raising revenue and cutting expenses. First thing we could do is remove the earnings cap for SS & FICA deductions. The earnings cap is presently at $106,8000, remove it, have no earnings cap for the employee but retain the cap for the employer! Reason for employer retention of the cap is because we need to lower taxes and give employers incentives in this country to expand their businesses and hire more people.
     
    If the earning cap was eliminated for the employee, this would mean no matter what an individual’s earnings were, $500,000, $750,000 or more, deductions would be at the same percentage as it would be for some one making $60,000 per year. This alone would start putting dollars back in the fund at a good clip. This should have been done 20 years ago!
     
    If the federal government would start cleaning their own closets, such as, closing certain departments down that are a waste of tax payers dollars. Revamp existing departments and stream line them. Take HUD for an example. If we reduced the the staff by 50% and then took 50% of what is remaining and replaced them with qualified people, we would have a functional department doing what it should have been doing for years!
     
    Their are so many ways to trim the budget and cut expenses that are never mentioned by our politicians, which is sad. One other point about the debt ceiling debates. I have not seen a detailed breakdown of what each side is proposing. These are our tax dollars these politicians are playing with, we have a right to know what the proposed cuts are in these debates, not just conversation using words like Medicare, Social Security and terms of not raising taxes or cutting spending by Trillions! Specifically what are the cuts, who do they effect and what dollar amounts are we talking about!
     
    I am one individual that is demanding the President and the Speaker of the house to show the American people the precise details of what each side is proposing so we the people can judge!!
     
    Thank you,
     
    John A. Smaldone

  • I would like to express my feelings over the whole debt ceiling debates. First off, I am ashamed of both parties over this fiasco! First off, on the subject of social security. We have seniors around the country who are scared to death. They have no idea what is in store for them. Many have only social security to look forward to as their only means of survival. Seniors have not seen an increase in their social security in two years and who knows if one is on the horizon. Yet they see congressmen and senators getting raises.

    If FHA has to shut down because the two sides can’t work out a deal that will be to the benefit of the American people, this will put the reverse mortgage in the line of fire once again!
     
    What about some common sense method’s of raising revenue and cutting expenses. First thing we could do is remove the earnings cap for SS & FICA deductions. The earnings cap is presently at $106,8000, remove it, have no earnings cap for the employee but retain the cap for the employer! Reason for employer retention of the cap is because we need to lower taxes and give employers incentives in this country to expand their businesses and hire more people.
     
    If the earning cap was eliminated for the employee, this would mean no matter what an individual’s earnings were, $500,000, $750,000 or more, deductions would be at the same percentage as it would be for some one making $60,000 per year. This alone would start putting dollars back in the fund at a good clip. This should have been done 20 years ago!
     
    If the federal government would start cleaning their own closets, such as, closing certain departments down that are a waste of tax payers dollars. Revamp existing departments and stream line them. Take HUD for an example. If we reduced the the staff by 50% and then took 50% of what is remaining and replaced them with qualified people, we would have a functional department doing what it should have been doing for years!
     
    Their are so many ways to trim the budget and cut expenses that are never mentioned by our politicians, which is sad. One other point about the debt ceiling debates. I have not seen a detailed breakdown of what each side is proposing. These are our tax dollars these politicians are playing with, we have a right to know what the proposed cuts are in these debates, not just conversation using words like Medicare, Social Security and terms of not raising taxes or cutting spending by Trillions! Specifically what are the cuts, who do they effect and what dollar amounts are we talking about!
     
    I am one individual that is demanding the President and the Speaker of the house to show the American people the precise details of what each side is proposing so we the people can judge!!
     
    Thank you,
     
    John A. Smaldone

  • Critic,I am sorry, I disagree with you. I respect your opinion, however, to say HUD is under staffed is as bad as saying all departments within the Federal Government are under staffed.With social security, there has always been a cap imposed, the cap has been increased over the years but it has always been there. Why not remove the cap, why not pay into the fund, regardless of one’s earnings. As far as me coming in with the amount of revenue this will generate, no I did not and I don’t know what that figure would be. Common sense will tell you a tremendous amount would be raised. By not having the cap in play does not mean it will not be self funded, on the contrary, who do you think will be funding it under my plan? The wage earners will!We do not need to add a surtax. That would mean every wage earner would have to pay a surtax up to the $106,800 limit. Wrong, eliminate the cap, this way every dollar earned would have the deduction with out a surtax!In 1967, the then President of these United States, Lynden B. Johnson got the approval from congress to borrow from the social security fund and put in its place IOU’s. Those IOU’s are in some big room in the White House but you and I as well as everyone else know they were never paid off. The social security fund would not be in the mess it is in today if it were not for this one main reason.Getting back to HUD and the rest of the Federal Government, it is to big, plain and simple. We need to reduce the size of government drastically, eliminate departments that are not needed and bring many of the responsibilities back to the states where they belong in the first place. We then need to restructure what departments are left and eliminate the massive waste we have in departments like HUD!This great nation of ours is broke, busted, in short, we are bankrupt! The sooner the American people realize this and start doing something about it, just maybe we might still have a chance of survival!! I am sorry Critic, you and I usually agree on most things, this one time we are very far apart on, with all due respect!Thank you,John A. Smaldone

    • John,
       
      It is not the debt which is the issue.  The Social Security Administration (“SSA”) tracks what Treasury owes it and nothing as to principal has been lost.  Economists do not argue from that standpoint.  The trouble is with the earnings on that debt.  If they had been invested in annuities or other market products, the return would have been many times larger.  That is one of the many reasons for the underfunding. 
       
      The other problems include social programs which have crept into the program such as SSI.  Then there are widow’s and children’s benefits which went beyond the original concept.  Most conservative observers like Senator Barry Goldwater warned about socialist engineering moving into the program and making it another means for liberals to fund their pet projects without use of the general fund.  Using such methods are not new to politicians.  Look at the Roman Senate of Nero or the actions of the German government under the national socialist party of Germany, known today as the Nazis.
       
      It is not the SSI trustees who allowed this mess but the US Congress.  Since it was the choice of the American people to indirectly and directly raid the Social Security system through their elected representatives, so should it be the American people as a whole which make up for such abuses.  Why should those with jobs carry this burden alone?  Other than being American citizens they had no part in it.  They probably would have voted against it if they had been eligible to vote at the time and the issue was actually something the electorate as a whole could vote on.
       
      Much of the junk was promoted by those who are wealthy but do not make a salary such as LBJ, the Kennedys, Rockefellers, Heinzs, Fords (car family), and others who receive the vast majority of their income from sources not subject to Social Security tax.  We are in this thing together; let all taxpayers pay, not just those who work.  After all these horrible ideas on how to ruin the SSA trust fund were not done just to benefit those who contribute to the Social Security trust fund.
       
      Apparently you are not too familiar with surtax.  It can be charged on all tax liabilities or only those exceeding $30,000.  It can be graduated at 1% for those with net liabilities between $10,000 and $20,000 and 7% for tax liabilities above that amount.  You choose the rules but both the working and nonworking should pay for what Congress did to get funding for its programs.  Why steal from the working wealthy alone?

      Without stats, don’t trust your own logic.  It may not be as dependable as it might seem.  Believe, but VERIFY.  After all we are not omniscient.

      Respect is not based on agreement.  I respect you and your opinion and support your right to express it even when we rarely disagree.

  • Lance,
    I hope you are wrong.  The ceiling has already been raised several times!  When will this stop?  Its about time to make cuts and begin to payoff the Trillions in debt that our Nation owes.  If not now…WHEN!
    Its time to suck it up!

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