The nation let out a sigh of relief Thursday as President Obama signed into action a fiscal deal, allowing the government to reopen its doors and temporarily raise the debt ceiling.
However, the aftershock of the federal freeze — while minimal — will leave the mortgage market to deal with various clogs in the industry pipeline.
As Federal Housing Administration as well Department of Housing and Urban Development employees returned to work Thursday, many will face the challenges of dealing with a significant backlog in high-risk loans as well as reverse mortgages for seniors.
Roughly 5% of FHA loans require manual underwriting and intervention by staff members. As a result of the shutdown, these loans will receive delays as well as a critical backlog, according to a government spokesperson.
Additionally, while federal employees were temporarily unemployed, seniors participating in the Home Equity Conversion Mortgage program were not serviced.
Prior to the shutdown, FHA supported 1,300 households involved with reverse mortgages per week.
Consequently, senior borrowers will have to wait longer for the approval or closing process — leaving homeowners with an undesignated timeline.
From a lending perspective, the federal halt sent consumer confidence into a downward spiral given that the loan process was delayed, explained NexBank regional sales executive of the correspondent lending division Gabe Medrano.
“I think for those that are strictly offering the vanilla product, their margins are very think and competition is very thick,” he said. “Portfolio lenders were the ones who came out ahead of all lenders because they were able to turn on certain switches to generate real estate income elsewhere like legacy assets.”
Overall, Medrano does not believe the federal freeze will have a long-term impact on the mortgage industry.
However, he did note that it was interesting to watch how the mega banks were affected by the government halt compared to smaller lending companies since there are more options for the book of business.
“Going forward, smaller portfolio lenders are going to be the guys that are making the deals and doing the business because they are not as vanilla as the larger banks,” Medrano said.
He concluded, “We don’t have a line drawn in the sand of what deals we can and cannot do.”