In the event of a government shutdown, most Federal employees are required to stop working because no funds would be available to pay staff, ultimately ceasing most housing agency’s functions.
Consequently, the Federal Housing Administration will be unable to endorse any single-family loans and staff will be unavailable to underwrite and approve new loans, according to a Department of Housing and Urban Development’s latest report.
If an application for an FHA-insured loan is not approved by the time of the government shutdown, it will not make it through the system, impacting affordability opportunities for homeowners.
Given that government-backed mortgages account for more than 90% of loans, the shrinkage in volume flow would critically hit the housing market.
When put into perspective, more than 9,000 HUD employees, only 3.8%, or 350 employees, will be able to work, according to HUD.
Currently, FHA endorsements currently represent 15% of the market, with 80% of loans endorsed by lenders with delegated authority.
In the event of a government shutdown, the Office of Single Family Housing will maintain the minimum operations necessary to support FHA’s existing portfolio.
These functions include operating both the FHA call center, servicing Secretary-held notes and mortgages, as well as ensuring the continuity of FHA’s real estate-owned properties disposition process — addressing REO health and safety violations and paying related contractor invoices.
Work during an appropriations hiatus includes the performance of functions that are funded through multiyear appropriations or where the failure to perform those functions could result in an imminent threat to the safety of homeowners and their property.
Furthermore, these activities are associated with FHA’s portfolio of insured mortgages, including multifamily, sing family and project-based rental assistance.
Nonetheless, it’s important to note that there are a few number of activities deemed excepted in order to preserve life and property, including Ginnie Mae.
"An interruption in the operations would create immediate and significant market disruption that would lead to financial losses for investors and increased mortgage rates for government-insured mortgage loans," HUD stated.
As a result Ginnie Mae would continue operations, specifically the government-owned enterprise’s ability to issue mortgage-backed securities and ability to receive and process monthly loans.
Additionally, government-backed home loans that are purchased and securitized by Fannie Mae and Freddie Mac will be unaffected by a shutdown since both enterprises operated autonomously.
"Will continue our day-to-day operations are a as private company in the market so there will be no change, no effect and will continue to operate as normal," stated Fannie Mae spokesperson Andy Wilson.
On a similar note, Freddie Mac would continue normal operations without interruption.
"Although we are currently in conservatorship and regulated by the Federal Housing Finance Agency, we are a privately held company and a temporary shutdown would have no direct impact on us," Freddie Mac spokesperson Brad German said.