Yesterday, President Trump released a memo calling for the temporary pause of grants, loans, and other financial assistance programs.
The executive order was intended to address the “more than $3 trillion” in federal financial assistance doled out in fiscal year 2024 (of the $10 trillion total).
It went on to say that “federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance.”
The move was intended to allow for a review of the programs offered by these agencies to ensure they align with the President’s priorities of reducing government spending.
Instead, it sparked widespread confusion, including concerns that the FHA, VA, and USDA home loan programs would be disrupted in the process.
MBA President Calls for Clarity on President’s Memo
After fears of a mortgage disruption began to spread, the Mortgage Bankers Association (MBA) released a statement on the matter.
MBA President and CEO Bob Broeksmit sought clarity on the memo to ensure it “did not apply to the single family and multifamily loan insurance or guarantee programs at their agencies.”
“Americans are going to the closing table tomorrow and deserve to know that their loan will close on their home purchase. Without this clear assurance that the federal government will insure new loans or pay claims under these programs, there will be severe harm to borrowers and disruption to the mortgage market.”
While individual banks and lenders are the ones that actually fund the mortgages backed by these government agencies, there was uncertainty about insurance and guarantees tied to the loans.
The FHA has since released a statement (pictured above), saying its single-family programs remain operational, including Title I and Title II mortgage insurance.
And noted that they were not subject to the pause in federal grants or loans specified in the president’s order.
Meanwhile, Ginnie Mae (which guarantees timely payments on federally-insured loans) said the pause on agency grants, loans, and other financial assistance programs “does not apply to Ginnie Mae.”
And that “Ginnie Mae’s activities will continue unimpeded.”
Ginnie Mae’s guarantee applies to FHA loans, VA loans, and USDA loans. It’s very important as it provides the liquidity necessary for lenders to originate and make subsequent loans.
While we’ve yet to hear from the VA directly, or the USDA, we can perhaps assume the same will be true for them.
Note that while Fannie Mae and Freddie Mac, which back conforming mortgages, are in government conservatorship, they aren’t explicit government agencies and thus shouldn’t be affected.
In other words, it sounds like business as usual in the mortgage industry, despite a big scare today.
But the very fact that the MBA, FHA, and Ginnie Mae had to release statements about the status of their operations is pretty troubling.
This Raises Bigger Questions About the Next Four Years
While it appears that mortgage lending will be unaffected by the pause in government funding, it speaks to bigger issues.
The more uncertainty there is out there, the less likely it is we’ll see improvements in mortgage rates.
While Trump demanded lower interest rates last week, all the volatility could have the exact opposite effect.
Sure, mortgage rates generally respond well to economic weakness because it signals cooling inflation and a flight to safety (bond buying).
But not knowing if a given government agency is going to function tomorrow likely won’t do much to put investors at ease, especially mortgage-backed securities (MBS) investors.
There’s a fine line between reducing government spending and shutting down federal agencies overnight.
It makes me wonder if MBS investors and banks/lenders will continue to offer defensive mortgage rate pricing, aka higher pricing.
Arguably, we already saw the 10-year yield go up a lot since October when it became clear that Trump was the frontrunner.
And the irony was that he ran on the promise of reducing government spending, which would theoretically reduce bond issuance and lower interest rates.
Instead, all we’ve gotten so far is a lot of confusion and mortgage rates that remain elevated since falling close to 6% in September of last year.
If this continues to go on, chances are mortgage rates will be stuck in a tighter range, as nobody will want to stick their neck out and get burned.
Read on: What Will Happen to Mortgage Rates During Trump’s Second Term?
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.