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MBA's Government Shutdown Analysis

Published: September 17, 2015

Dear Coloradans in the Mortgage Industry, a message from MBA:

I wanted to share with you an update about the potential for a government shutdown on October 1st.

The below analysis is a compilation from MBA’s government affairs team and recent media reports.  MBA believes there is a 20-25% chance the government will be forced to shut down for at least a few days during the first week of October.  Those odds could grow depending on the level of animus and squabbling that could occur amongst members of Congress over the next couple of weeks.

Background: In recent years, lawmakers have increasingly relied on stopgap spending bills to fund the federal government at the start of a new fiscal year (October 1).  These continuing resolutions (CRs) can last only a few days or stretch for months, can cover all or only parts of the government and, in most cases, continue funding for agencies at current levels.  Because CRs are considered “must-pass” legislation, lawmakers often complicate the politics of enactment by jockeying over policy “riders,” attempting short-term extensions for expiring programs (think highway spending), and/or making small adjustments in spending levels for specific programs – some of which are either highly sought (or adamantly fought against) by the administration.

Decision Points: Congress once again will need a CR to keep the government open in early fiscal 2016 – and the clock is ticking with only twelve legislative days this month due to the Jewish holidays and the Pope’s visit to DC next week.  Republican leaders have begun discussions over a CR within their respective GOP caucuses, but it’s already mid-September and they’ve yet to announce any real decisions regarding the length or content.  The most explosive topic in those discussions is whether or not to include federal funding for Planned Parenthood, given the loud chorus of conservative House members calling to slash the organization’s funding immediately.  But such a provision would undoubtedly doom a CR to be voted down in the Senate or vetoed by the President. 

Variables:

  1. Intra-party politics: The Republican leaders are eager to avoid a shutdown as their party “controls” Congress and they want to show the country that the GOP can govern responsibly, but House Speaker Boehner’s leadership post may literally be at stake.  If disgruntled conservatives aren’t pleased with how Planned Parenthood funding is resolved, or if the Speaker may (in all likelihood) need to rely on “aye” votes from Democratic House members to get to 218, they could very well force a vote on his Speakership. 
  1. Presidential Election Politics:  And though it’s believed that Senate Majority Leader McConnell and Dem leader Harry Reid probably have 85 votes between them for a clean CR (one that simply maintains FY 15 spending levels)  one can envision a Senator like Ted Cruz or Rand Paul using procedural maneuvers (e.g., filibusters, forcing 60-vote thresholds on “motions to proceed,” etc.) to slow the Senate down and try and score presidential campaign points.  It’s even unclear which chamber – either the House or Senate – will actually move first to debate, consider, and vote on a CR.  
  1. Debt Limit:  To complicate matters even further, the Congressional Budget Office (CBO) believes the government will likely hit the current $18.1 trillion debt limit around mid-November or early December.  Congress must approve an increase in the government’s borrowing authority to prevent a first-ever default on the national debt.  Sound familiar?  Treasury Secretary Jack Lew has been actively calling for congressional leaders to deal with the debt limit ceiling sooner rather than later (see linked letter here: http://www.treasury.gov/connect/blog/Pages/Treasury-Sends-Debt-Limit-Letter-to-Members-of-Congress.aspx).  In short, an opportunity for more brinksmanship. 

What happens if there is not a deal on a CR?:  If Congress can’t reach a deal to extend funding, then most of the government will be forced to shut down, as it did for two weeks in October 2013 sparked by a dispute over Obamacare.  Although federal agencies are required to furlough non-essential employees without pay during shutdowns, they have some latitude in designating emergency personnel who can remain on the job. 

Implications for Lenders:  Consistent with past guidance MBA and others have provided as a shutdown looms, it’s difficult to quantify all of the possible impacts, but lenders processing loans that need tax transcripts or social security number verification, or any FHA/VA/RHS loans, should anticipate delays and reduced functionality from the agencies involved, including the IRS and Social Security Administration.  A shutdown lasting a few days would slightly inconvenience lenders (both single- and multifamily) in processing loans; a longer delay would have more serious impacts, particularly in states where loan production is dominated by Ginnie Mae-securitized lending.  Long-term furloughs may disrupt time-sensitive residential mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing and the time the loan is securitized.   The Government Sponsored Entities (GSEs), Fannie Mae, Freddie Mac, and the Federal Home Loan Banks would not be directly affected, except to the extent that they rely on verification and other functions from HUD, the IRS, and the SSA. 

As we have in past instances, MBA will provide more agency-specific direction (after consulting with key regulatory personnel) if a shutdown appears to be more imminent in the coming days. 

If you have any questions please let MBA senior staff know. 

Thank you,
Bill Killmer
Senior Vice President  | Legislative and Political Affairs
Mortgage Bankers Association