Update:

All sideWASHINGTON -- Congress reached an agreement avoiding a government shutdown late Friday night.

Just after midnight the U.S. Senate and House of Representatives passed a continuing resolution as a stop-gap measure, which was signed by President Obama on Sunday, to continue funding the government until a final bill is passed by both houses this week.

The near-miss on the government shutdown over the Congressional budget impasse could have had an adverse effect on the wood products industries, on several fronts.

First, in the already struggling housing market, a shutdown would have meant no new loans could be processed.

That's because the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD), insures mortgages for single-family and multi-family units. If Federal offices close, FHA workers would have been among the almost 9,000 (91 percent of the staff) sent home.

FHA has become increasingly important to the housing market, especially during the recession. Government-backed mortgages made it easier for buyers to purchase homes in a tight credit market with many banks reluctant to lend.

As a result, FHA, Freddie Mac and Fannie May soaked up a significant part of the consumer mortgage market. Politico reports that approximately 90 percent of single- and multi-family home loans are government insured. And according to a special report by the Federal Reserve Bank of Philadelphia, FHA loan market share nearly doubled since 2000 from 10.53 percent to 20.76 percent. Of home purchases, that number rises to nearly 40 percent.

The potential government shutdown was also occurring during a critical time — the spring home buying season. Homebuilders were already feeling the strain of a weak market with a decline in housing starts in Feb. Although the survey of National Association of Home Builders (NAHB) members indicated a slight increase in future expectations, there was still a great deal of uncertainty expressed, which would likely have increased with a government shutdown.

Some private banks may still have made loans during a limited shutdown, especially if the loan was in process; however smaller banks may not have wanted to take the risk without a government guarantee.

The wood industry is also reliant on employees at the Department of Commerce, in managing trade disputes over imported wood products Around 30,000 of Commerce's 46,761 workers would have been furloughed. And at the U.S. Department of Agriculture, which oversees the Forest Service, which manages timber contracts, 80 percent of the USDA's 110,000 employees were deemed non-essential and were to be furloughed for the shutdown. They were advised in a USDA memo:

Timber Sale Contracts

• The interests of the government cannot be protected if work performed under timber sale contracts is not overseen by agency officials. If timber contracting officers, contracting officer’s representatives, and sale administrators are furloughed, then the agency will need to contact purchasers and suspend operations. A letter should be sent to purchasers specifying that
operations will be suspended because of a lack of appropriations. This may subject the government to claims from purchasers for undue delays."

• Each contracting officer will have to assess if site specific short term mitigation measures are necessary to protect critical resources as part of suspending operations.

Permits

• The two most common forest products permits are for firewood and special forest products. Sale of these permits would be suspended with a furlough. However permits already sold to the public will still be in effect. Enforcement of the terms of these permits will only be by agency personnel considered essential (Law Enforcement), unless field units have agreements with local law enforcement agencies.



Update: Housing sales threat dodged as budget passes
Federal Reserve Bank of Philadelphia

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