What the Government Shutdown Means for the FHA and the Housing Market

 

No matter what your politics are, most everyone can agree that the government shutdown is not a good thing. The housing recovery is chugging along at a good clip and the last thing that sellers, buyers or anyone else wants is to disturb that.

However, that may not be possible. The FHA has been reduced to a skeleton crew, almost one tenth of the full staff. But their funding has not been affected because they are on a different appropriations schedule than the rest of the government entities that are currently being affected.

According to a HUD spokesman, “The single-family aspect of FHA is funded through multiyear appropriations.” The only type of mortgage they won’t be able to underwrite is multifamily housing during the furlough, but they can still endorse them.

In the short term, there shouldn’t be much of an effect on the housing market from the FHA. The loans that are in the pipeline can still be processed and the rest of the system is so automated that new loans should be able to process through as average. The real issue comes if the government stoppage goes on for too long. Those appropriations could run out and then single family home loans would run into a real problem.

IRS Issues

The real problem with the government shutdown and home loans is that most lenders need to verify information like social security numbers and pull tax returns. The IRS has to respond to lenders’ requests for tax returns and if they don’t, the loans can’t move forward.

Most experts agree that if the government shut down goes beyond a week then serious loan delays could occur. Without housing loans being processed, it’s hard to know how the market will take the stagnation and what will happen with prices, inventory and demand.

Ripple Effects

The ripple effects of a government shutdown that goes longer than a few weeks could be pretty serious.

One possible issue would be that home sellers might balk at accepting offers from FHA borrowers in order to avoid closing delays. This will dramatically affect first time borrowers and those with low down payments. The potential for a snowball effect is very real.

If lower price homes can’t sell or can’t sell quickly, prices could drop and the housing recovery could be seriously affected. And we know what that has done before… less jobs, less hiring, less buying, which leads to less jobs and so on.

Get it Together

Avoiding the politics here, one thing is certain; everyone involved in the housing market wants this shut down to be as quick as possible. Of course, there are issues like the debt ceiling looming as well that might pose even bigger problems for the government, the economy and housing market in particular.

Let’s cross our fingers and hope that lending continues at a good clip, lenders can get tax returns from the IRS and we keep this recovery on track.