Whether you are buying or selling you need to know that the Budget Sequester will affect the FHA. And why this could be bad for you…
I am sure you have seen the idiots in Washington pointing fingers and blaming each other about the Sequester. And you may even wonder what the heck sequester means. Or maybe you are curious about how this is going to affect you if you are buying or selling real estate.
What is Sequester?
The sequester is automatic spending cuts put into law by the Budget Control Act. This was signed into law by by President Barack Obama back in August 2011 as a temporary solution regarding the debt ceiling. The intent was to raise the debt ceiling and give Congress more time to come up with a longer term plan for deficit reduction.
We are looking at $1.2 trillion in budget cuts that will be spread over nine years. During 2013 we are going to see budget cuts of $85 Billion go into effect. The budget cuts would end in 2021.
How Does Sequester Affect Real Estate?
Well it is going to affect many different branches of the government. Including HUD and FHA. And this will hurt both buyers and sellers since FHA is making so many mortgages today. If it gets harder to get a mortgage or if it takes longer to get a mortgage, this will have a negative effect on the housing market. Consider this snippet from an article I just read:
As the political showdown over the United States budget deficit continues with the early days of the sequestration, government agencies are beginning to asses the impact of the sudden spending cuts. The Department of Housing and Urban Development (HUD) is one of such entities, and the overall impact from the sequester could negatively affect the Federal Housing Administration (FHA) and contract the housing market recovery by about two percent.
According to a recent news article in Blommberg, HUD is prepared to lay off FHA loan origination and foreclosure counseling staff as a way to deal with the sequester. Although the FHA is already financially constrained due to the massive amount of risk it carries in its mortgage portfolio and its inadequate reserves, it stands ready to issue more guarantees. The problem is that the pace of its approvals could slow down considerably with less staff. With the strict mortgage lending and underwriting conditions in place these days, many first-time home buyers rely on the FHA as a lender of last resort.
I would not say that FHA is the lender of last resort. Rather I would say FHA is the first choice for many home buyers. And if sequester hurts buyers using a FHA mortgage, then this will trickle down and hurt sellers.
The constant drama and inept handling of economic issues by ALL of our elected officials is pathetic. If we want a strong economy and improvements in the unemployment numbers, then it means a healthy real estate market. And a healthy real estate market can contribute to a strong economy and lower unemployment.