Home > Blogs > Breaking News: Government Shut Down and FHA Loans  - Who and what will be affected?
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The Adam and Eric Team

Orange County Real Estate

By Adam Brett | Agent in Fullerton, CA

Breaking News: Government Shut Down and FHA Loans - Who and what will be affected?

Government Shut Down and FHA Loans  - Who and what will be affected?

This is the season when the highest number of sales occur in the real estate industry.

Unfortunately, an interruption by the federal government just might happen. If Republicans and Democrats cannot come to an agreement on the budget, the Federal Housing Administration will be shut down. This shutdown would not affect Fannie Mae and Freddie Mac, but it could potentially stop FHA and other government-backed loan guarantee programs.

With the potential shutdown, the Federal Housing Administration will not be able to endorse any single-family loans, and staff will not be available to underwrite and approve new loans, thus affecting the real estate industry immensely. USDA and VA loans programs (smaller in numbers) could very much be affected too. The National Association of Realtors issued a memo saying that lenders may continue to process and guaranty mortgages through the VA Loan Guaranty program. FHA loans account for about 30 percent of the market and a long-term shutdown could batter an already weak real-estate market.

Other parts of the industry would also be affected including the Small Business Association approval of applications for business loan guarantees and direct loans to small businesses would probably cease.

The EPA will cease environmental impact statements, probably slowing the approval for some construction projects, according to a senior administration official. It would also cease permitting locations for air and land and water pollution limits. Tourist sites would be affected such as the Smithsonian, National parks and other sites will be closed.

If the government were to shutdown, two important steps in the FHA origination process would be put on hold. FHA lenders may still be able to originate loans, but they would have to wait on obtaining case numbers and a mortgage insurance certificate to be issued. During the last government shutdown in November 1995, case numbers could not be obtained.

During the shutdown in 1995, the government’s closing of the FHA delayed the process of 10,000 home loans.  Most lenders will likely continue with applications assuming that the funding will eventually come through.  The delay would cause problems for buyers who have already given notice to current landlords and sellers who are relying on FHA loans from their buyers so they can move into their next homes.

President Obama is scheduled to meet with Speaker of the House Rep. John Boehner (R-Ohio) and Senate Majority Leader Sen. Harry Reid (D-Nev.) today to continue the negotiations.

Comments

By Allan Erps,  Thu Apr 7 2011, 15:22
Boy, what a mess! Thanks for the Post!
By Bill Eckler-Florida,,  Thu Apr 7 2011, 16:51
Is there ever a chance the politicians will be able to see the forest through the trees?

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