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The Sequester’s Here: Implications for Investors

HI3-3-13March 1 has come and gone, bringing with it the dreaded “sequester” – that second round of mandatory budget cuts left hanging over the country
after lawmakers backed down from the fiscal cliff at the New Year. With budget reductions aimed at defense and other government backed programs, the sequester has implications for all sectors of the economy, including the housing market.

Since much of the sequester’s effect is directly aimed at government bodies and programs, mortgage lending isn’t expected to suffer much, at least in terms of policy making and the actual business of servicing loans. These cuts can affect borrowers, though – and that has an indirect effect on the industry. With furloughs and layoffs looming for state and federal employees across the country, industry insiders predict that fewer potential buyers will be seeking loans for home buying.

More foreclosures could be on the way, too. As these employees and others in government administered health and social services programs either lose jobs or face reduced hours – a scenario that could put many of them at risk for defaulting on mortgages or running late with payments. And although the homeowner assistance programs created after the housing collapse could offer assistance, those programs backed by government entities such as Fannie Mae are vulnerable to sequester-triggered cuts.

The Home Affordable Foreclosure Alternatives (HAFA) program is a Treasury-sponsored program that helps some distressed homeowners with short sales and deed in lieu of foreclosure proceedings. Another Treasury program, the Home Affordable Modification Program, or HAMP, offers loan modification to certain struggling borrowers who must be able to make regular mortgage payments on the new terms offered by the program.

Some holders of mortgages backed by the government bodies Fannie Mae and Freddie Mac are eligible for the Home Affordable Refinancing Program, or HARP, now in its revised version, HARP 2.0. As we’ve written before in this space, HARP now includes loans made to investors as well as residential homeowners. Although these and other government backed assistance programs don’t directly provide funds, budgets cuts in personnel and resources could shrink them or eliminate them altogether.

Investors in income property may also see a drop in demand for rental property in some locations, such as areas near military installations and government related industries such as defense contracting as these entities experience furloughs, layoffs and closures that drive workers out of the area in search of new work. Plus, reduced hours for those employees who do keep their jobs could mean reduced rents in the area.

Lawmakers and economists say it’s too early to assess the true impact of the sequester cuts on the economy as a whole – and the housing market. But investors following Jason Hartman’s investing recommendations can expect some shifts, whether large or small, in the income property landscape.

The Heroic Investing Team

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