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Potential Government Shutdown Threatens Home Loan Processing

Christine Stuart
Sep 26, 2023
Ginnie Mae announced its 2019 Ginnie Mae Summit that was planned for Feb. 4-5 in Washington, D.C., has been postponed due to the partial federal government shutdown

Limited staffing at HUD and USDA may cause delays in FHA, VA, and reverse mortgages, impacting home buyers and the broader housing market.

As if loan originators needed something else to worry about, there is the possibility of a government shutdown Sunday that could impact FHA and VA loans, along with home equity conversion or reverse mortgages. 

In the event of a shutdown, the U.S. Department of Housing and Urban Development (HUD) will have limited staffing and stop processing home equity conversion or “reverse” mortgages altogether. “Because we are able to endorse most single-family loans, we do not expect the impact on the housing market to be significant, as long as the shutdown is brief,” HUD said in an explainer. “With each day the shutdown continues, we can expect an increase in the impacts on potential homeowners, home sellers, and the entire housing market.”

The agency added: "FHA will have limited staff during a shutdown, and the processing or closing of FHA-insured loans may be delayed. The longer the shutdown lasts, the more serious the impact will be. All FHA underwriting and processing requirements would remain in force during the government shutdown, and no loan may be endorsed that does not fulfill those requirements."

"I believe a government shutdown would layer additional risk into the system and would drive rates up further past 8%, from their current levels of around 7.5%," Shant Banosian, a branch manager and senior loan officer at Guaranteed Rate, said. "This would further impact home price affordability due to higher borrowing costs, during a fall market that is already showing signs of a slow down.

Typically, Congress can avoid a shutdown by passing a temporary spending measure, but it's unclear if that will happen before Sunday. 

On Monday, Agriculture Secretary Tom Vilsack appeared at a White House briefing and warned that some people trying to purchase homes in rural areas may not be able to receive loans guaranteed or provided by the USDA. He said that could mean some potential purchasers may “not able to close the loan; it’s also conceivable that they may lose the deal.”

Data from the Home Mortgage Disclosure Act of 2022 indicates that the Department of Agriculture's Farm Service Agency and Rural Housing Service granted 54,603 U.S. loans across 250 working days, averaging about 218 daily.

The FHA initiated about 140,888 single-family loans over 61 working days -- an average of roughly 2,310 daily.

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