FHA-backed mortgages will be halted in a shutdown# Living
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If the government shuts down, what happens to all the Uncle Sam-backed
mortgages that are in the pipeline? They account for about 90% of U.S. home
loans, so reducing that flow could hurt the housing recovery.
The good news is that most government-backed home loans - those purchased
and securitized by Fannie Mae and Freddie Mac - will be unaffected by a
shutdown. Those companies pay for their operations out of the fees that they
charge lenders.
Related: How will a government shutdown affect you?
The bad news is that loans guaranteed by the Federal Housing Administration,
the Veteran's Administration and the rural development loans of the United
States Department of Agriculture, won't be processed. If an application for
an FHA-insured loan has not been approved by the time of the shutdown, it
will have to wait until after the shutdown ends.
FHA-backed loans accounted for 45% of all mortgages used to purchase homes
issued in 2012, according to the Federal Reserve. The FHA alone insures
about 60,000 loans a month.
"FHA will be unable to endorse any single-family loans and FHA staff will be
unavailable to underwrite and approve new loans," in the event of a
shutdown, according to the contingency plan from the Department of Housing
and Urban Development, the FHA's parent agency.
Of the 9,300 employees who work for HUD, only 350 (3.8%) will be able to
work, according to a HUD release.
Related: What happens in a shutdown
"The housing market is searching for recovery, and we've been seeing signs
of optimism," said said David Stevens, CEO of the Mortgage Bankers
Association. "This could have a sizable impact on the recovery."
Many buyers have no alternative to FHA, VA or USDA mortgages. First-time
buyers in particular often lack the cash for the large downpayments that
other lenders require. FHA rules allow homebuyers to make a downpayment of
as little as 3.5% of the selling price -- $7,000 on a $200,000 home. A 20%
downpayment is normal, which would be $40,000 for that $200,000 purchase.
Related: How a shutdown would hurt Main Street
The FHA also has more flexible rules for borrowers who have had payment
problems in the past, or who have thin credit histories.
What happens in a government shutdown
A slowdown in home sales would be felt beyond the housing market. Homebuying
triggers related economic activity. New homeowners have their homes painted
, they buy furniture, install floors or carpeting and put in new decks and
landscaping.
"All that would come to a stop," said Stevens.
And, if a shutdown drags on for more than a few days, "The impact on the
housing market and the economy could be significant," he said.
But things aren't likely to come to that, according to Mark Zandi, chief
economist for Moody's Analytics.
"The effects of a shutdown would be so dark," he said, "I can't believe the
legislators would not come to terms to end it." To top of page
mortgages that are in the pipeline? They account for about 90% of U.S. home
loans, so reducing that flow could hurt the housing recovery.
The good news is that most government-backed home loans - those purchased
and securitized by Fannie Mae and Freddie Mac - will be unaffected by a
shutdown. Those companies pay for their operations out of the fees that they
charge lenders.
Related: How will a government shutdown affect you?
The bad news is that loans guaranteed by the Federal Housing Administration,
the Veteran's Administration and the rural development loans of the United
States Department of Agriculture, won't be processed. If an application for
an FHA-insured loan has not been approved by the time of the shutdown, it
will have to wait until after the shutdown ends.
FHA-backed loans accounted for 45% of all mortgages used to purchase homes
issued in 2012, according to the Federal Reserve. The FHA alone insures
about 60,000 loans a month.
"FHA will be unable to endorse any single-family loans and FHA staff will be
unavailable to underwrite and approve new loans," in the event of a
shutdown, according to the contingency plan from the Department of Housing
and Urban Development, the FHA's parent agency.
Of the 9,300 employees who work for HUD, only 350 (3.8%) will be able to
work, according to a HUD release.
Related: What happens in a shutdown
"The housing market is searching for recovery, and we've been seeing signs
of optimism," said said David Stevens, CEO of the Mortgage Bankers
Association. "This could have a sizable impact on the recovery."
Many buyers have no alternative to FHA, VA or USDA mortgages. First-time
buyers in particular often lack the cash for the large downpayments that
other lenders require. FHA rules allow homebuyers to make a downpayment of
as little as 3.5% of the selling price -- $7,000 on a $200,000 home. A 20%
downpayment is normal, which would be $40,000 for that $200,000 purchase.
Related: How a shutdown would hurt Main Street
The FHA also has more flexible rules for borrowers who have had payment
problems in the past, or who have thin credit histories.
What happens in a government shutdown
A slowdown in home sales would be felt beyond the housing market. Homebuying
triggers related economic activity. New homeowners have their homes painted
, they buy furniture, install floors or carpeting and put in new decks and
landscaping.
"All that would come to a stop," said Stevens.
And, if a shutdown drags on for more than a few days, "The impact on the
housing market and the economy could be significant," he said.
But things aren't likely to come to that, according to Mark Zandi, chief
economist for Moody's Analytics.
"The effects of a shutdown would be so dark," he said, "I can't believe the
legislators would not come to terms to end it." To top of page
