Obama administration warns cuts would hurt housing, Sandy relief

WASHINGTON Thu Feb 14, 2013 11:38am EST

File photo of U.S. Housing and Urban Development Secretary Shaun Donovan announcing February 9, 2012 in Washington that the federal government and 49 state attorneys general have reached a $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. REUTERS/Gary Cameron

File photo of U.S. Housing and Urban Development Secretary Shaun Donovan announcing February 9, 2012 in Washington that the federal government and 49 state attorneys general have reached a $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.

Credit: Reuters/Gary Cameron

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WASHINGTON (Reuters) - The Obama administration on Thursday warned that deep government spending cuts set to go into effect next month would have harsh consequences for housing programs and could threaten Superstorm Sandy recovery efforts in the U.S. Northeast.

Housing and Urban Development Secretary Shaun Donovan urged lawmakers to agree on a plan to stave off the $85 billion in automatic across-the-board cuts, known as "sequestration," set to begin on March 1.

"Sequestration is a blunt and indiscriminate instrument that was passed to help ensure that action is taken on a balanced deficit reduction package," Donovan told the Senate Appropriations Committee. "The ripple effects are enormous because of how central housing is to our economy."

In cataloging the impact of the cuts, which would total $1.2 trillion over nine years, Donovan said they would lead to a five percent reduction to Sandy recovery funding, or approximately $800 million. That money has gone towards repairs for more than 10,000 homes and small businesses in disaster areas across the U.S. Northeast.

Millions of people were left without employment and homes in the aftermath of the late-October storm, which caused flooding, wide-spread power outages and deaths. Donovan has been appointed by the White House to lead federal rebuilding efforts.

"This will not only prolong the suffering in a region that has been hit again this past weekend by a new storm," Donovan said. "It will also cost jobs that would be created by full expenditure of the approved funding and slow the full recovery."

Another vulnerable program that falls under HUD's umbrella is the financially strapped Federal Housing Administration. The agency is facing a projected $16.3 billion shortfall in its insurance fund, drawing concerns it may need taxpayer aid.

"Sequestration would jeopardize FHA's ability to process loans," Donovan said. That risks destabilizing the mortgage market and slowing the broader economic recovery, he said.

The government mortgage insurer backs 15 percent of all U.S. loans used for home purchases and is a source of funding for first-time buyers and modest-income borrowers.

Sequestration would also cut $212 million from HUD's HOME and Community Development Block Grant programs, Donovan said, adding that communities receiving the funds could lose nearly half a billion dollars in private funding because they would no longer be able to leverage federal dollars.

More than 100,000 homeless and formerly homeless people, including veterans, would be removed from their current housing or emergency shelter programs, as a result of the cuts, he said.

Foreclosure prevention and other types of housing, purchase or rental counseling would reach 75,000 fewer households, he said.

Sequestration would also directly affect HUD employees. The housing department's more than 9,000 staff members in 80 field offices "furloughs or other personnel actions," Donovan said.

(Reporting by Margaret Chadbourn; Editing by Jackie Frank)

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Comments (3)
jscott418 wrote:
I thought we did not have a spending problem? Now we cry the sky is falling? Hey, Mr President how about fixing things then. Not kicking the can so we can have more fine comments about the “end is near”.

Feb 14, 2013 11:53am EST  --  Report as abuse
justinolcb wrote:
wait – this is the deal that he agreed to – now he doesn’t like it???

Feb 14, 2013 12:43pm EST  --  Report as abuse
jaham wrote:
I don’t believe it has yet dawned on Obama that he is as lame a duck as you’ll ever find.

His only opportunity to accomplish anything in his second term was to merge to the center, instead he’s made a hard veer to the left because he believes the electorate so adores him and everything he says.

The truth is that the American electorate also voted in Republicans to control the House in 2010 and retained that majority in 2012 with the sole intention of thwarting his boneheaded initiatives.

His policies are a non-starter, but he is trying to further ostracize Republicans politically. Fortunately, I believe after 8 years of an abysmal economy, stubborn unemployment, and reckless spending Americans will finally realize that a robust private sector, not a bloated government, is the only organic and sustainable path to prosperity.

Feb 14, 2013 3:24pm EST  --  Report as abuse
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