Government spending cuts that could automatically go into effect next month if Congress fails to reach a budget deal could result in more foreclosures, riskier lending and employee cutbacks at the Department of Housing and Urban Development, according to the head of the agency.
The automatic spending cuts, known as “sequestration,” are required by the Budget Control Act of 2011 and set to go into effect on March 1 if members of the Senate and House can’t agree on a budget deal.
HUD Secretary Shaun Donovan is among a parade of Obama administration officials heading to Capitol Hill to warn legislators of the impact the cuts will have.
“With respect to the Department of Housing and Urban Develop that I am privileged to lead, these cuts would be deeply destructive, would damage the economy, and would harm numerous families, individuals and communities across the nation that rely on HUD programs,” Donovan’s prepared testimony for a Senate Committee on Appropriations hearing on Thursday said.
According the HUD chief, sequestration would impact 75,000 of the households that are receiving counseling for foreclosure prevention, pre-purchase and rentals through HUD’s housing counseling.
Donovan noted that the counseling helps borrowers avoid foreclosure. It also helps prevent delinquencies for new homebuyers.
More than 9,000 people are employed by HUD at 81 field offices, according to the testimony.
“Specific plans are still being reviewed and finalized, but we believe that furloughs or other personnel actions may well be required to comply with cuts mandated by sequestration,” Donovan said. “The public will suffer as the agency is simply less able to provide information and services in a wide range of areas, such as FHA mortgage insurance and sale of FHA-owned properties.”
Donovan warned the senators that the indiscriminate spending cuts would have devastating effects on the U.S. economy and American consumers.
