The ongoing government shutdown in Washington may impact HUD project timelines. This month’s HUD Insights provides an overview of what borrowers should be aware of and includes four additional policy updates from Capitol Hill that could influence future project planning.

• 1. Borrower Update on the Ongoing Federal Service Interruption
• 2. Major Affordable Housing Bill Clears Senate, But What Comes Next?
• 3. Rule Change Would Greenlight Work Requirements, Time Limits on Rental Assistance
• 4. Bill Calls on Federal Agencies to Partner on Affordable Housing Solutions
• 5. Bipartisan Support for TRIA Reauthorization at House Hearing

1. Borrower Update on the Ongoing Federal Service Interruption

The story: As the government shutdown reaches the one-month mark, here are three quick need-to-knows for HUD borrowers.

• Deals in processing have temporarily paused.
• Those who have received a Firm Commitment prior to the interruption will continue to move through closing.
• Deals with an assigned FHA number can be submitted but will not be actively processed until operations resume.

HUD recently implemented staff reductions affecting several hundred employees, primarily within the Offices of Community Planning and Development and Fair Housing, with no reported layoffs in production divisions.

“One of the few silver linings in this shutdown is what it’s doing to mortgage rates. We’ve seen rates dip to near their lowest levels of the year. The average 30-year fixed rate recently hovered around 6.3%, a notable retreat from the peaks we saw earlier in the year.”
– Alex Blackwood, CEO and co-founder of real estate investing platform, mogul

The follow-up: While negotiations on Capitol Hill have been stalled for weeks, the prolonged interruption is now the second-longest in U.S. history, increasing disruption and economic risk. Lawmakers from both parties are expressing interest in restoring government operations as soon as possible.

The bottom line: Although conditions remain uncertain, active discussions and operational efforts are underway to bring the shutdown to a close and support a return to normal government functions.

2. Major Affordable Housing Bill Clears Senate, But What Comes Next?

The story: Earlier this month, as the shutdown raged on, the Senate passed the “ROAD” to Housing Act, a bipartisan markup calling for the Federal Housing Administration’s (FHA) multifamily loan limits to be raised for the first time since 2003, among other provisions. The bill now moves to the House for approval.

• The “ROAD” to Housing Act aims to boost production of affordable housing by creating more flexible financing options, incentivizing zoning changes, removing regulatory barriers, and streamlining the review process.
• The House hasn’t yet scheduled a vote on the legislation, but the bill is seen as a strong example of bipartisanship while the political rift on Capitol Hill widens.
  • The bill advanced out of the Senate Banking Committee in a unanimous 24-0 vote in July.
  • It passed the full Senate by a 77-20 vote.

“Through updates to support additional housing construction and preservation, as well as private investment in housing and other community development needs, the bipartisan ‘ROAD’ to Housing Act … will play an essential role in boosting our nation’s housing supply and supporting our nation’s rural, tribal, and lower- and moderate-income communities.”
– Sarah Brundage, President and CEO, National Association of Affordable Housing Lenders

The follow-up: Industry groups are watching for the House version of the “ROAD” to Housing Act, saying the major provisions in the Senate bill should remain intact. MBA President and CEO Bob Broeksmit says its goal is to “strengthen key provisions—including those dealing with lender liability and second appraisals—to ensure the final package delivers meaningful results for consumers, lenders, and the communities they serve.”

The bottom line: The House is expected to make changes to the bill before it’s brought to the floor for a vote in the chamber. We’re keeping an eye on what those changes will look like.

3. Rule Change Would Greenlight Work Requirements, Time Limits on Rental Assistance

According to the Associated Press, HUD has drafted a proposed rule that includes a two-year time limit on certain federal rental assistance programs and could allow public housing agencies to implement work requirements.

So far, HUD has not commented on the report, and draft language has not been posted to the Federal Register.

“The devil will be in the details on this proposal. Any work requirements or tenancy limits should be imposed by HUD or the housing authority and not by the property owners. Housing providers should not bear the costs and burden of evictions without full support of HUD and the housing authority.”
– MBA’s Megan Booth

The follow-up: Booth said MBA is working with federal housing authorities to better understand the intention of the draft rule and how HUD envisions its implementation. She noted that at least half of housing voucher recipients are elderly or disabled and will need exceptions to the draft rule.

The bottom line: While there’s no sense of a timeline for when the draft rule may be finalized, there’s typically a period for public comment. That gives housing groups, providers, and other industry stakeholders a chance to weigh in.

4. Bill Calls on Federal Agencies to Partner on Affordable Housing Solutions

The story: The bipartisan Congressional Real Estate Caucus in the House has introduced legislation that would create an interagency task force, including HUD, FHFA, USDA, VA, and Treasury, to develop policies to improve the availability of affordable housing. If enacted, the Saving the American Dream Act would require the agencies to deliver a report with their recommendations within a year.

• The bill directs the agencies to focus on several priorities:
• Streamline and coordinate federal housing finance programs
• Lower construction and borrowing costs
• Reduce regulatory barriers to housing production
• Expand down payment assistance programs for buyers
• Coordinate disaster recovery programs
• The legislation complements the “ROAD” to Housing Act, which aims to reform zoning and land use rules to increase housing production.
• These efforts come amid a historic shortage of affordable housing. A study from the National Low Income Housing Coalition earlier this year found that the U.S. is short 7.1 million rental units for “extremely low-income” households.

“The housing undersupply crisis continues to be a defining challenge of our time, and while there have been recent improvements, the supply-demand imbalance varies widely by market. That is why the data-gathering and coordination in the Saving the American Dream Act will be critical information to help address housing supply needs in communities across our country.”
– Bob Pinnegar, President and CEO, National Apartment Association

The follow-up: With the “ROAD” to Housing Act heading to the House, there may be impetus for House lawmakers to move on the Saving the American Dream Act as well. If passed by the House, the latter legislation would need approval by the Senate.

The bottom line: There’s appetite on Capitol Hill to showcase bipartisanship amid political uncertainty. So, the future of this and other housing legislation—an increasingly rare opportunity to find agreement on both sides of the aisle—looks bright.

5. Bipartisan Support for TRIA Reauthorization at House Hearing

The story: The House Financial Services Committee held a hearing in September to discuss reauthorization of the Terrorism Risk Insurance Act, an essential safety net for commercial developers. Policymakers on both sides of the aisle agreed that a long-term, clean reauthorization is their goal. TRIA is set to expire in 2027. (Read a working draft of the bill.)

• TRIA ensures terrorism risk coverage remains available and affordable. Without it, terrorism exclusions would reappear in insurance policies, making commercial development more costly.
• A lapse in TRIA funding could cause disruptions in commercial capital flow and a slowdown in economic development.
• The Coalition to Insure Against Terrorism, which represents industries like transportation, real estate, manufacturing, and retail, sent a letter to the House Subcommittee on Housing and Insurance supporting TRIA reauthorization.

“By all accounts, the program has been a model public-private partnership. The backstop remains a critical component to a stable terror insurance market, particularly for nuclear, biological, chemical, and radiological events, and has enabled insurance to be placed and investments to be made.”
– Michelle Sartain, President and CEO of insurance broker Marsh US

The follow-up: There’s a lot of time on the clock before TRIA expires, but early indications are that lawmakers are supportive of reauthorization.

The bottom line: This is looking like an easy win for CRE.