One of the primary concerns raised in response to Memorandum M-25-13 was whether federal home loan programs, specifically VA, MSHDA and FHA loans, would be affected. Fortunately, these loan programs were not impacted by the memorandum, but before we dive into the details, what is Memorandum M-25-13 and what has transpired since it’s announcement?
Understanding Memorandum M-25-13
On January 27, 2025, the Office of Management and Budget (OMB) issued Memorandum M-25-13, which directed federal agencies to temporarily pause all activities related to the obligation or disbursement of federal financial assistance. This directive was meant to reassess how taxpayer dollars were being allocated and ensure compliance with newly established government objectives.
Later on Tuesday, a federal judge temporarily blocked the order, preventing the restrictions from taking effect until at least February 3.
Does the Federal Funding Freeze Impact VA, FHA or MSHDA Loans?
Despite initial uncertainty, the Department of Housing and Urban Development (HUD) has clarified that single family mortgage insurance programs remain operational and are not subject to the spending freeze.
1. VA Loans Operate Through a Separate Funding Mechanism
VA loans, which are backed by the U.S. Department of Veterans Affairs (VA), are not dependent on discretionary federal assistance that would have been subject to the temporary pause. VA loans are part of an established program that operates through the VA Home Loan Guaranty Program, ensuring that veterans, active-duty service members, and eligible surviving spouses can access mortgage financing.
Since VA loans are guaranteed rather than directly funded by the government, they function within the private lending system. Lenders provide the financing, while the VA guarantees a portion of the loan, reducing risk for the lender. This structure ensures that VA loans remain unaffected by short-term federal funding changes, such as the pause imposed by Memorandum M-25-13.
2. FHA Loans Are Self-Sustaining Through the Mutual Mortgage Insurance Fund (MMIF)
FHA loans, insured by the Federal Housing Administration (FHA), are also insulated from disruptions caused by policy shifts like the temporary pause in financial assistance. FHA loans are funded through the Mutual Mortgage Insurance Fund (MMIF), which collects mortgage insurance premiums (MIP) from borrowers. These funds are used to sustain the FHA loan program without relying on discretionary federal spending.
The Bottom Line
Homebuyers can take comfort in the fact that federally backed mortgage programs remain stable even in the face of policy shifts. While changes in federal financial assistance programs can create short-term uncertainties, the resilience of programs like MSHDA, VA and FHA loans ensures that homeownership remains accessible for eligible borrowers.
About Michigan Mortgage Lender, Julie Krumholz from Superior National Bank
With over 35 years of experience in the mortgage industry, Julie Krumholz from Superior National Bank is a trusted resource and friend to homebuyers. Julie has worked in processing, closing, loan origination, underwriting, and QC auditing and has even co-owned a mortgage brokerage firm. Julie applies her knowledge to help first-time and seasoned homebuyers with a seamless homebuying experience.
