Loan officers, lenders and borrowers are starting to get a bit nervous about FHA lending being adversely affected if the government shuts down. In a recent article written by Brian Collins of Origination News, posed some interesting questions about how the FHA mortgage loan programs could be affected if the U.S government shuts down on Friday. Since FHA has a significant market-share in home financing, there certainly could be some dramatic setbacks. While FHA is best known for first time home buyer loans, the government finance agency has a wide variety of FHA mortgage programs for refinancing and home purchasing.
According to FHA commissioner, David H. Stevens, if the government does shut down, HUD will be forced to stop endorsing new FHA home loans. At this point Congress will have to come together and agree to budget deal with the Obama Administration by midnight Friday.
Will Government Shutdown Cause a Bottleneck for FHA Loans?
According to a memo drafted by a housing trade group, “FHA cannot offer endorsements for any new FHA home loans in the Single Family program and are not allowed to make further commitments in the Multifamily if the government shutdown happens.” “FHA lenders” will need to brace for the government shutdown or shift gears with conventional loans backed by Fannie Mae and Freddie Mac.
According to analysts at Keefe, Bruyette & Woods last year, the Federal Housing Administration insured almost 40% of all home loans totaling $200 billion. According to the government sponsored enterprises regulator, the government shutdown would not stop Fannie Mae and Freddie Mac from buying and securing home mortgage loans. The GSEs are in conservatorship and dependent on a Treasury Department line of credit to stay afloat. Nevertheless, the terms of the conservatorships and Treasury’s support is not affected by the budget process.” According to a statement issued by the Federal Housing Finance Agency a government shutdown would not impact the operations of Fannie Mae and Freddie Mac as the Treasury Department Preferred Stock Purchase Agreements with the Enterprises are not subject to the annual appropriations process.”
HUD Secretary, Shaun Donovan discussed his homeownership vision a few days ago when he underlined the new direction that FHA is heading in an effort to prevent future housing bubbles and risky lending philosophies. According to Donovan, “The mentality of kind of using homes as ATMs that we got to three years ago—don’t mistake that with the long-term, fundamental belief that most Americans had in their homes not as piggy banks, but as a place to raise their kids, a place to invest in, and, in the long run, a place to build equity in that they could pass on to their kids and their grand-kids.”