After Treasury appeal, mortgage industry gets shutdown relief

By Lisa Rein and Jeff Stein | Washington

WASHINGTON – After an intense lobbying campaign by the
mortgage industry, the Treasury Department this week restarted a
program that had been sidelined by the partial government shutdown,
allowing hundreds of Internal Revenue Service clerks to collect
paychecks as they process forms vital to the lending industry.

The hasty intervention to restore the IRS’ income verification
service by drawing on revenue from fees – even as 800,000 federal
employees across the country are going without their salaries –
has intensified questions about the Trump administration’s
unorthodox efforts to bring certain government functions back
online to contain the shutdown’s impacts.

Critics, including many former IRS officials, described the move
as an act of favoritism to ease the burden on a powerful

“It seems crazy to me that a powerful bank or lobby gets to
bring their people back to do their work,” said Marvin
Friedlander, who served as a senior IRS official in the mid-2000s.
“How about the normal slob who can’t even pay his rent?”

Administration officials said they are simply seeking to
minimize the harm caused to the public by the budget standoff,
which on Saturday will become the longest in modern U.S.

Because of the shutdown, the IRS was unable to process a key
form that lenders use to confirm borrowers’ incomes before they
can grant home loans – a roadblock that threatened to bring the
mortgage industry to a halt.

The IRS said it was able to restart the program by using fees
paid by companies that provide the transcripts to lenders.

“We were advised by various parties that the shutdown of [the
program] was creating significant issues for certain borrowers,”
the Treasury Department said in a statement. “We are pleased to
help taxpayers by ensuring this service continues despite the

Craig Phillips, a counselor to Treasury Secretary Steven
Mnuchin, was among the officials who heard the concerns of the
mortgage industry directly, but he said in an email to The
Washington Post, “This action was not taken to benefit the
industry. It benefits the consumers that have made loan

The IRS clerks, who are paid $13-$18 an hour, process 400,000
tax transcripts a week – helping potential home buyers verify
their incomes and the $1.3 trillion mortgage banking industry earn
millions of dollars in fees.

The effort to restart the processing of those transcripts came
after direct appeals by the trade association that represents
credit reporting companies and top mortgage industry officials. The
lobbying was led by Robert Broeksmit, chief executive of the
Mortgage Bankers Association, who took the matter to Phillips,
Mnuchin’s senior adviser.

“I said, ‘Look, this is starting to be a problem for the
lending industry,’ ” Broeksmit said. His group, one of the most
influential trade associations in Washington, represents 2,300
mortgage companies, brokers, commercial banks and other financial

Broeksmit said he asked whether the IRS clerks could come back
to work, saying: “Could you make these guys essential?”

Phillips declined to comment on their exchange.

The answer came the next day, Broeksmit said: The IRS employees
would be called back to work.

After hearing concerns that the program had gone dark, top
Treasury officials called senior officials at the White House
Office and Management and Budget to consult on a solution,
according to people familiar with the discussions.

On Monday, 400 furloughed IRS clerks in Fresno, California,
Cincinnati, Kansas City, Missouri, and Ogden, Utah, were called
back to work, according to employees and union officials.

“I’d like to take some credit,” Broeksmit said, adding:
“Our direct request got quite rapid results.”

Unlike the vast majority of the 420,000 federal employees who
have been required to work during the shutdown because they are
essential to national security or public safety – among them
airport screeners, food inspectors and Border Patrol agents – the
IRS clerks are being paid, to their surprise.

Their salaries – normally funded by congressional
appropriations – are being financed by industry user fees, an
unorthodox strategy that the administration is also using to put
some National Park Service employees back on the job.

Some legal experts questioned the IRS maneuver.

“They’re only allowed to keep open essential activities, and
processing mortgage applications is valuable and appreciated, but
do not rank with air traffic controllers,” said Charles Tiefer, a
former deputy general counsel in the U.S. House of Representatives.
“The administration is playing fast and loose with the shutdown
to prevent it from becoming unpopular with their own base.”

Tiefer, a professor at the University of Baltimore School of
Law, said he believed the Trump administration would lose a lawsuit
on the issue if someone could find standing to bring a case, which
he said was unlikely.

The Office of Management and Budget approved shifting the fees
to the IRS’s salary account because those funds are designated
for a variety of agency operations, a senior administration
official said.

In announcing the return of IRS employees who process the tax
transcripts, the IRS also said it was restarting other fee-based
services, including one that provides letters certifying residency
for taxpayers in the United States.

“There’s nothing unusual about it, because the account has
this flexibility,” said the official, who spoke on the condition
of anonymity to describe internal discussions. “We are doing
whatever we can, consistent with the law, to keep government
programs running as long as possible under the lapse.”

Some agreed, saying the IRS, unlike other federal agencies, has
broad leeway.

“It appears that the IRS has quite a bit of legal flexibility
to use money it raises from user fees,” said Timothy
Westmoreland, a professor at Georgetown Law who has studied federal
budgets and legislation. “I can’t say for sure, but it looks
like there’s legal ground for this.”

Still, some former IRS officials called the workaround a handout
to an influential interest group.

“How do you justify that?” said John Koskinen, who served as
IRS commissioner from 2013 to 2017. “There are a lot of things
that are inconvenient for people to have. It’s about the law. You
can’t incur obligations or take actions unless you’re
protecting life or property.”

In recent days, the Trump administration has sought ways to keep
some government services going as the shutdown has dragged on,
directing furloughed employees to extend food stamp benefits,
provide flood insurance, maintain parks and reinstate other
services that were prohibited during past shutdowns.

“Every time you turn the corner around here, they are finding
another way to somehow appease their pressure points by finding
these gimmicks,” said William Hoagland, who was Republican staff
director for the Senate Budget Committee during a shutdown in the

Under federal law, the government is not allowed to spend money
that has not been appropriated by Congress, and agencies are
allowed to retain only employees who perform essential functions
critical to public health or national security.

That means the IRS has been largely shuttered. The tax agency
sent home about 90 percent of its workforce without pay. Call
centers used by taxpayers across the country are closed. Audits
have been halted, according to the agency’s shutdown contingency
plan. There’s no training for thousands of employees to prepare
for this year’s tax filing season, which is expected to be
particularly complicated as the new tax law fully takes effect.

This week, the administration announced it would bring back
furloughed employees who process early tax refunds, but they are
not being paid.

The IRS’ contingency plan, which was updated in December,
requires staffers in the income verification program to be
furloughed in the event of a shutdown, as they were during a
similar 2013 budget impasse.

One employee who was told to come in said the agency was bending
the rules.

“I don’t feel like this is a national security issue or
falls into any of the guidelines of operating under a government
shutdown,” said the clerk, who spoke on the condition of
anonymity out of fear of retaliation for speaking out.

“It’s just wrong,” the clerk added. “If the American
people knew that a small group of people was getting paid just to
benefit big corporations, I think they’d be pretty mad.”

Shannon Ellis, president of Local 66 of the National Treasury
Employees Union, which represents 4,300 IRS employees in Kansas
City, said she was “happy our employees are getting paid,” but
noted “this one little area is the only area in the agency where
it’s happening.”

Across the industry, there was relief that the transcripts were
moving again.

Leonard Ryan, founder and president of the mortgage compliance
firm QuestSoft, said his company would have had to lay employees
off without a fix.

“We had a severe backlog – now it’s down to two days,”
Ryan said. “It’s kind of amazing what they’ve done to get
back up. . . . They’ve figured a workaround – but that’s what
the mortgage industry does.”

Broeksmit said he was hours into his Christmas week beach
vacation when he began getting emails on his phone from members of
his mortgage bank trade group nervous about the closing down of the
tax transcript program.

Back in Washington, Broeksmit said, he took the matter up
directly with someone he knows well at Treasury who serves as a
senior adviser Mnuchin. He declined to name the official, but the
Treasury Department confirmed it was Phillips, the liaison to the
banking industry.

Boeksmit said Treasury officials were not aware that the IRS’
closure was causing problems for mortgage lenders, in part because
tax transcripts are now required far more often than before the

Members of the Mortgage Bankers Association originate the vast
majority of loans in the real estate financial market, valued last
year at $1.6 trillion. The group spent $2.2 million on lobbying in
2018, according to lobbying records filed with the House Clerk’s

Broeksmit was not the only one in the industry to lobby the
Trump administration to get the program restarted. Top Treasury and
IRS officials also heard from the Consumer Data Industry
Association, which represents credit reporting companies, according
to one of the group’s members.

“We are communicating with multiple federal agencies during
the shutdown to make them aware of issues negatively impacting
consumers and our customers,” Jacob Hawkins, a spokesman for the
credit rating agency Equifax, which buys transcripts from the IRS
to provide to lenders, said in an email.

Related Articles

Rep. Gerald Connolly, D-Va., a member of the House Oversight
Committee, said he is likely to seek an investigation into why the
IRS restarted the tax-transcript program: “We now have government
by carve-out, and the carve-outs are apparently determined by how
powerful and influential you are.”

The Washington Post’s Anu Narayanswamy and Damian Paletta
contributed to this story.

Source: FS – All – Real Estate News 1
After Treasury appeal, mortgage industry gets shutdown relief