It's finally April and thousands upon thousands of new home listings are hitting the market – but a key source of homebuyer financing, the Federal Housing Administration (FHA) program, will shut down Friday night if Congress cannot reach terms on a budget deal.
“FHA will not be issuing any endorsements during the shutdown,” a U.S. Department of Housing and Urban Development (HUD) official told National Mortgage News. He noted that the no-issuance policy applies to single as well as multifamily product. In short, its underwriting department will shutter.
Moreover, 80 FHA field and regional offices will close for business if Congress cannot come to terms on a budget deal. Those FHA employees will not be paid.
According to figures compiled by NMN and the Quarterly Data Report, FHA coverage accounts for three out of every 10 new mortgages written.
“This shutdown will happen in the middle of a fragile housing recovering,” the HUD official said. “This is not the time to turn off the tap on granting mortgage authority.”
Last year, FHA insured nearly 40% of all home purchase mortgages totaling $200 billion, according to analysts at Keefe, Bruyette & Woods.
During the last government shutdown in 1995, FHA had a 12% share of the mortgage market.
Although FHA will close for business, Fannie Mae and Freddie Mac will remain open, purchasing and guaranteeing loans. But industry officials point out that the pricing and underwriting requirements on GSE loans are higher than FHA loans.
While the GSEs are dependent on a line of credit from the U.S. Treasury to keep their net worth positions in the black, the terms of Fannie and Freddie's conservatorships, and Treasury's support for the GSEs -- are not affected by the budget process.
"A government shutdown would not impact the Enterprises' operations as the Treasury Department Preferred Stock Purchase Agreements with the Enterprises are not subject to the annual appropriations process," according to the Federal Housing Finance Agency (FHFA). FHFA would not be affected by a shutdown either.