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Analysts say FHA shutdown possible without budget consensus

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If Republicans and Democrats cannot come to an agreement on the budget, Federal Housing Administration lending could experience delays and backlogs. If the government were to shutdown, two important steps in the FHA origination process would be put on hold. FHA lenders may still be able to originate loans, but they would have to wait on obtaining case numbers and a mortgage insurance certificate to be issued. During the last government shutdown in November 1995, case numbers could not be obtained. "We believe it is very likely that loans will not be endorsed and mortgage insurance certificates will not be issued in the event of a shutdown," Bank of America Merrill Lynch analysts said in a report Thursday. Lenders with direct endorsement authority could potentially obtain MI certificates. In 1995, the FHA sent out a letter after the shutdown and cleared lenders to obtain an MI certificate, even for loans for which a case number was obtained before origination. Certain conditions had to be met. "The business risk (loan going delinquent before endorsement) and balance sheet needs of FHA lenders does go up if there is a shutdown and lenders continue to originate loans, especially if a shutdown is prolonged. In such a scenario lenders may decide to stop accepting new applications," analysts said. They did add that Ginnie Mae would continue to operate, allowing already issued FHA loans to be securitized into pools. President Obama is scheduled to meet with Speaker of the House Rep. John Boehner (R-Ohio) and Senate Majority Leader Sen. Harry Reid (D-Nev.) Thursday afternoon to continue the negotiations. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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