Americans worried that a looming U.S. government shutdown could derail their plans to take out a mortgage or refinance their home loan can breathe easy — mostly. Housing experts says lenders will continue processing mortgages as usual even if federal agencies close shop, while noting that a shutdown could lead to hitches for borrowers applying for government-backed loans.
“If you’re expecting to close in a week or a month, there could be some slight delay,” said Jeff Ostrowski, a housing analyst at Bankrate. “But I think for most people, it’s probably going to be a blip more than a real deal killer.”
The bulk of the mortgage market consists of loans originated by private lenders. But some government agencies have a hand in the process, such as the Federal Housing Administration (FHA) insuring private loans or Federal Emergency Management Agency (FEMA) managing flood insurance policies.
Impact on government-backed loans
Borrowers applying for a conventional mortgage issued by a bank, credit union or other private lender are unlikely to encounter problems if the government closes shop. However, those applying for government-backed loans from agencies like the FHA, Department of Veteran Affairs an Department of Agriculture (USDA) could face minor delays lining up their mortgages, Holden Lewis, a senior writer at NerdWallet, told CBS MoneyWatch in an email.
The National Association of Realtors (NAR) notes in an online explainer that the FHA will continue to approve most single-family mortgage loans in the event of a shutdown. The VA will also continue to guarantee home loans, but worker furloughs at the agency could lead to processing delays, the group said.
“It creates a little bit of extra stress and uncertainty, but I haven’t seen a shutdown in either of those programs” when politics led the government to shut it doors in the past, Ostrowski said.
The VA and FHA account for up to a quarter of all mortgage applications, according to Redfin. NAR advises U.S. veterans applying for or refinancing a government-backed loan to check with their lender on how long it will take to complete the process if the government shuts down.
Another segment of the housing market that could feel the impact of a shutdown are people applying for mortgages through the USDA, which issues loans to buyers in eligible towns and rural areas. NAR said the USDA will halt issuance of new direct and guaranteed home loans during a shutdown. Pre-scheduled direct‑loan closings will also be postponed.
The USDA did not respond to a request for comment. The VA referred CBS News to its shutdown contingency plan, which says the agency will continue issuing “housing benefits.”
Fannie Mae and Freddie Mac, the government-sponsored entities that support roughly 70% of the mortgage market, don’t rely on federal funding and have continued to operate during past shutdowns. However, they could face bottlenecks if federal agencies close down this week, said Anthony Smith, an applied economist at Realtor.com.
“They rely on other federal processes like the IRS for tax transcript verifications,” he said. “So if the IRS shuts down or significantly cuts back on its transcript services, then Fannie and Freddie might be able to approve a loan, but they can’t get the final verification piece.”
Possible flood insurance delays
People purchasing a house in a flood zone could also face delays during a government shutdown, experts told CBS News. That’s because homebuyers applying for a federally backed mortgage in high-risk flood areas are required to get flood insurance. A shutdown could hamper the FEMA-administered National Flood Insurance Program, which underwrites more than 4 million flood insurance policies in the U.S.
“The government shutdown could complicate your closing because it might be harder to just secure flood insurance,” Ostrowski told CBS News.
FEMA did not respond to a request for comment.
According to the White House, the flood insurance program cannot sell new or renewal insurance policies during a government shutdown.”A potential lapse of the NFIP authorization would negatively impact many thousands of Americans who would be left unable to renew/transfer their coverage or to buy the required coverage for their homes,” a White House official said in an email.
