The effects of the federal government shutdown on the housing market are wide-ranging and personal--unpaid workers still have to pay their mortgage, while aspiring homeowners might see their loans in limbo.
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The government shutdown could delay loan closings, according to Zillow.[/caption]
About 800,000 workers aren't being paid, about 380,000 are furloughed and another 420,000 are working without pay, and still must find ways to pay for their housing as the shutdown heads into its third week, according to Zillow. Zillow. Federal employees who are not being paid during the shutdown and own their homes pay an estimated $249 million in mortgage payments each month.
Also, the Federal Housing Administration is operating with limited staff and warns that endorsement of loans may be delayed. That could mean some loans don't close, as that decision depends on the flexibility of individual lenders, leaving buyers unable to complete their purchase. Many lower-income or first-time buyers opt for the FHA insured loans because they often allow for smaller down payments and offer more forgiving credit-score requirements than conventional loans.
An estimated 3,900 mortgage originations are processed each business day backed by federal government agencies, such as the Federal Housing Administration and the Rural Housing Service. It isn't clear what portion of those are delayed, or for how long, because of the limited staff during the shutdown. When those loans are delayed, it most affects those with the greatest hurdles to become homeowners. FHA won't insure reverse mortgages or home-improvement loans during the shutdown.
The Department of Housing and Urban Development does not expect a significant impact as long as the shutdown is brief. But "with each day the shutdown continues, we can expect an increase in the impacts on potential homeowners, home sellers and the entire housing market," the agency says.
In addition, the shutdown could lead to administrative delays associated with loans backed by Fannie Mae and Freddie Mac, two independent agencies that insure the vast majority of mortgages. Those include lenders unable to get verification of employment for borrowers who are federal employees, and potential IRS delays verifying borrower incomes, which could lead to loans being denied.
"Like Americans in the private sector, many federal employees rely every paycheck to cover critical expenses, including housing," said Zillow’s senior economist Aaron Terrazas. "It also could have a significant impact on the overall housing market if it continues to drag on and furloughed workers who also are would-be buyers get cold feet in the absence of paychecks. Buying a home is a huge leap of faith for many, as they bet on continued job security and steady income to finance their home, and consumer confidence is paramount."
