Homebuyers who depend on FHA and VA and loan programs may experience slower approvals, while processing of USDA loans is on hold for the duration of the federal government shutdown, policy experts at the National Association of Realtors say.
The Department of Housing and Urban Development (HUD) announced on the first day of the Oct. 1 shutdown that some Federal Housing Administration (FHA) operations and systems will remain operational, but with limited services.
In departments where FHA staff are not considered essential workers, “you could see that fewer staff are there and available, and they’re slower to process loan endorsements,” NAR Executive Vice President Shannon McGahn told members this week. “That can lead to delays that would hit first-time home buyers and the lower income households the hardest.”
VA loans “are considered essential and they do keep moving,” McGahn said, but veterans could “see those back office operations, eligibility checks or customer service lines that are slowing down.”
USDA rural housing loans “stop completely in a shutdown. There are no new guarantees or processing,” McGahn said. “So this disproportionately affects rural communities when USDA is often the only affordable option for them.”
FHA, USDA and VA loans account for about one in four mortgage applications, Cotality Chief Economist Selma Hepp said, so the shutdown “is likely to constrain the pool of potential homebuyers, especially those reliant on federally backed loans or related services.”
So far, the shutdown doesn’t appear to have had a major impact on homebuyer loan demand. Purchase loan applications fell by a seasonally adjusted 1 percent last week when compared to the week before, but were up 14 percent from a year ago, the Mortgage Bankers Association reported.
With mortgage rates on fixed-rate loans little changed last week, demand for purchase loans continues to show “moderate growth” on an annual basis, with stronger growth for FHA loans favored by first-time homebuyers, MBA Chief Economist Mike Fratantoni said, in a statement.
But Happ also warned of additional “ripple effects that don’t get much attention” that could impact closings, including adminstrative bottlenecks in government services like processing tax transcripts, employment verifications and identity checks.