THE BUDGET IMPASSE : Federal Real Estate Loans on Hold : Shutdown: Paperwork processing for VA and FHA borrowing halts. Home buyers are anxious as housing industry scrambles for solutions.
The processing of some FHA, VA and other government-subsidized real estate loans has halted due to the federal shutdown, causing severe anxiety among thousands of home buyers nationwide and prompting the real estate industry to scramble for makeshift solutions.
About 2,500 applications are processed every day in the FHA program alone--paperwork that is now piling up on the unoccupied desks of furloughed federal employees.
While many lenders are accepting new loan applications and holding scheduled closings during the shutdown, some loans are being held hostage at varying stages of the approval process and will be delayed until officials return to their jobs. Even then, there will be further delays as workers dive into a backlog of applications.
The FHA and VA loans are made by private lenders, but are guaranteed by the federal government and must meet more stringent guidelines than many other home loans. Many homeowners prefer those loans because the federal guarantee allows a lower interest rate.
Brian Chappelle, staff vice president of the Mortgage Bankers Assn. in Washington, said many lenders are accepting loan applications as usual with the assumption that when government bureaucrats return, they will catch up with the process of insuring the loans.
“Theoretically, the mortgage lenders would be at risk of the government not insuring the loans,” Chappelle said. “But they are willing to accept that minimal risk because they believe this is only a temporary interruption in the government.”
But, he added, if the shutdown continued for a month or longer “we would have some anxiety.”
Some lenders, however, are worried now and don’t know what exactly to tell perplexed potential home buyers.
“I know there’s no federal [insurance] right now,” said Daniel Dewey, an account representative for Norwest Mortgage in San Francisco. “It’s a major disruption.”
The problem, say mortgage lenders contacted Wednesday, is that they can’t get property appraisals or go to closing without a case-file number provided by workers within the Department of Housing and Urban Development. Other potential pitfalls include access to federal documents on previous insurance defaults and securing information from government officials knowledgeable in dealing with the more complicated applications.
Only those lucky enough to have their deals done--files completed, HUD approvals, inspections completed and closing dates set for this week--should expect to be unaffected by the shutdown. All others should expect some delays after the federal workers return before their loans can be completed.
“Any new business that comes in, we won’t be able to completely close until the government comes back,” said Bill Brewster, an official with Columbia National Mortgage in suburban Washington. “We’re doing hopeful thinking by taking applications and beginning the processing.”
Brewster said his firm has 50 offices across the United States, and all of them were open for business Wednesday. He added that customers were “worried a little bit. They all want to see the process through and move into their dream homes.”
He also said his firm is developing contingency plans should the furlough stretch beyond several weeks. “If the government doesn’t come back in a month, we may have to rethink taking new applications,” he said.
Industry officials say the average mortgage lending firm accepts about 10 applications a day, which means that within a week, a large firm with several offices could be sitting on hundreds of stalled applications.
But Chappelle said the delays are more likely to be headaches for people in the industry than for customers. “There’s some amount of paperwork that has to be done,” he said. “But that’s largely a clerical step, and from the home buyer’s perspective, the delays” won’t be noticed.
He said HUD has modernized many of its tasks and delegates the step-by-step process to the mortgage firms, which provided about 80% of the FHA and VA loans done last year.
“Much of the work isn’t dependent on HUD and can be done without the government,” Chappelle said. “A lender would have every right not to accept a loan application today, but most want the business and would be willing to take the risk to satisfy the customer. But there’s not much risk since everybody knows this is going to get resolved sooner rather than later.”