With just hours to spare, President Biden has signed a measure passed over the weekend to avoid a federal government shutdown.
The bill allows the government to stay open for 45 days, giving the House and Senate more time to finish their funding legislation. The 71-page short-term bill, crafted by House Speaker Kevin McCarthy, R-Calif., allocates disaster relief funds, but does not include new financial assistance for Ukraine’s ongoing war with Russia. The Senate voted to pass the continuing resolution 3 hours before a 12:01 a.m. shutdown of the federal government would have taken effect.
The good news – is that the bill re-authorizes the National Flood Insurance Program (NFIP). NAR had launched an aggressive Call to Action Friday and congress agreed.
“An extended lapse in NFIP authority could affect 1,300 real estate transactions per day. Our message got through,” says NAR Chief Advocacy Officer Shannon McGahn. “The NFIP’s authority to write flood insurance has been extended 25 times since 2017 alone,” McGahn adds. “This is largely due to NAR’s advocacy efforts on NFIP.”
NAR also issued an urgent primer to members READ MORE HERE detailing how a shutdown will affect the real estate economy, which makes up nearly 20% of the U.S. economy. The primer looks at how a range of programs are affected, from EPA wetlands designations to rural housing programs and the EB-5 Visa program. Read more here.
The House is set to resume budget talks immediately.
On September 30th, 2023 the Federal Government is set for a partial shutdown, unless Congress can agree on a Continuing Resolution (CR). For REALTORS® this means key challenges with everything from federal mortgage programs, to flood insurance, to income verification and more. We have seen this before. In a survey done By the National Association of REALTORS® (NAR) on the impact of government shutdowns on their business. The most common impact, at 25 percent, was the buyer decided not to buy due to general economic uncertainty, though they were not a federal government employee. 11 percent did report an impact on current clients and 11 percent on potential clients. Among those impacted by the shutdown, 1 percent had a closing delay because of a USDA loan.
HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program except for HECM and Title 1 loans. It will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities, including paying claims and collecting premiums. FHA Contractors managing the REO/HUD Homes portfolio can continue to operate. Some delays with FHA processing may occur due to short staffing. FHA updated policies to allow borrowers to obtain private flood insurance. Should the NFIP lapse, FHA borrowers can obtain flood insurance from the private market.
During previous shutdowns, Fannie Mae and Freddie Mac have continued normal operations since they are not reliant on appropriated funds. There are four key areas of consideration: verification of employment, tax transcripts, verification of social security number, and proof of flood insurance coverage application.
Verification of Employment
Tax Transcripts: Freddie Mac requires all borrowers to sign a 4506T (Request for Transcript of Tax Return) request form prior to close, but the request does not have to be processed prior to close. Fannie Mae requires the same unless the borrower’s income can be verified through Fannie Mae’s proprietary Desktop Underwriter verification system, in which case no 4506T is required. During past government shutdowns, the IRS suspended the issuance of tax return transcripts.
Verification of Social Security Number: Sometimes, social security numbers are disputed and must be verified. Fannie Mae allowed lenders to verify the numbers prior to delivery in the 2018 shutdown as a precaution but did not allow delivery if the number was not confirmed. Freddie Mac does not require verification of social security number.
While the IRS has not yet released its shutdown contingency plan, in past government shutdowns the agency has consistently held that its employees can remain on the job during shutdowns only if their duties protect the government. For example, during the 2018 closure, the roughly 12 percent of employees who were required to report to work could open mail only in search of checks payable to the government and were not allowed to answer taxpayer phone calls, issue tax refunds, release liens and levies or perform most other taxpayer services.
The U.S. Department of Agriculture will not issue new rural housing Direct Loans or Guaranteed Loans. Scheduled closings of Direct Loans will not occur. Scheduled closings of Guaranteed Loans without the guarantee previously issued would be closed at the lender’s own risk.
During the shutdown, the SBA will not process new loans or approve routine small-business loans, including the CDC 504 Loan Program and the 7(a) Loan Program; however, the agency will continue to close previously approved CDC 504 Loans and carry out limited loan servicing and liquidation activities. The Office of Advocacy will also cease operations. The SBA will continue to issue Disaster Loans should the need arise and will continue processing Paycheck Protection Program (PPP) loan forgiveness applications.
Although the EB-5 Immigrant Investor Regional Center Program receives government funding, its current operations are funded and authorized through September 30, 2027. Due to its reliance on some independent funding sources, the EB-5 Immigrant Investor Regional Center Program will continue to operate during this most recent shutdown. However, application times may be delayed because other agencies, such as the State Department, will shutdown and result in staffing shortages and additional delays. Investors may continue to file I-526 petitions and timely responses to USCIS Requests for Evidence (RFE) and Notices of Intent to Deny (NOID). In addition, investors may continue to prepare and file I-829 petitions.
The processing of labor condition applications for various work visas, including the H-2B visa, will be shut down. Similarly, the processing of prevailing wage, labor certification, and other DOL Office of Foreign Labor Certification (OFLC) operations will cease. DOL/OFLC personnel will not be available to respond to inquiries, and web-based systems for filing, status checks, and uploading documents, among other features, will be offline. Deadlines related to DOL applications and procedures are typically modified.
As a result of the government running only essential services, other agency actions, such as publishing proposed and final rules, are expected to be delayed. For example, the Financial Crimes Enforcement Network (FinCEN) is expected to release a notice of proposed rulemaking on anti-money laundering regulations for the real estate sector, which could potentially include new disclosure rules for real estate professionals to file in certain all cash transactions. For the latest on NAR’s engagement on and tracking of rulemaking activities, check out the Washington Report.