HUD warns FHA-insured loans would cease in shutdown

Julie C. Nichols General

HousingWire – Christina Mlynski

In the event of a government shutdown, most Federal employees are required to stop working because no funds would be available to pay staff, ultimately ceasing most housing agency’s functions. Consequently, the Federal Housing Administration will be unable to endorse any single-family loans and staff will be unavailable to underwrite and approve new loans, according to a Department of Housing and Urban Development’s latest report. If an application for an FHA-insured loan is not approved by the time of the government shutdown, it will not make it through the system, impacting affordability opportunities for homeowners.

Given that government-backed mortgages account for more than 90% of loans, the shrinkage in volume flow would critically hit the housing market. When put into perspective, more than 9,000 HUD employees, only 3.8%, or 350 employees, will be able to work, according to HUD. Nonetheless, it’s important to note that there are a few number of activities deemed excepted in order to preserve life and property, including Ginnie Mae.

"An interruption in the operations would create immediate and significant market disruption that would lead to financial losses for investors and increased mortgage rates for government-insured mortgage loans," HUD stated. As a result Ginnie Mae would continue operations, specifically the government-owned enterprise’s ability to issue mortgage-backed securities and ability to receive and process monthly loans. Additionally, government-backed home loans that are purchased and securitized by Fannie Mae and Freddie Mac will be unaffected by a shutdown since both enterprises operated autonomously.

>> Read more: http://www.housingwire.com/articles/27114-housing-market-will-take-massive-hit-in-a-shutdown