Government Shutdown and Mortgage Lending

News is coming in from the various government and quasi-government agencies that guarantee mortgages or lend directly. The U.S. Government effectively shut down at midnight on September 30th. The word from supposedly reliable sources is that the mortgage market is likely to be only minimally impacted by the shutdown. If this is the case, it’s good news, as the government is involved in underwriting, insuring, or issuing around 90% of all mortgage debt.

Fannie Mae and Freddie Mac

Mortgages guaranteed by Fannie Mae and Freddie Mac are unlikely to be impacted in any way, as these organizations are funded by the fees they charge. Though these agencies have been trying to scale back their mortgage activity amid discussions of closing them altogether, they still are major market lending resources.

Department of Veterans Affairs

Much the same as Fannie and Freddie, the VA mortgage function is paid for by the fees charged to lenders and borrowers. This lending should continue uninterrupted.

Department of Agriculture

While the mortgage activities of the Department of Agriculture are not nearly as well-known, this agency either guarantees mortgages or does direct lending in rural areas. As the vast majority of real estate outside of urban centers qualifies as rural under this program, it’s a big lending resource. This agency has suspended all loan activity.

FHA, Federal Housing Administration

The popularity of FHA loans has skyrocketed in recent years due to the still very low down payment requirements; as low as 3.5% required. Credit score requirements are less stringent as well. This growth in popularity has created a lag for many borrowers, some waiting months for their financing, and that’s before the shutdown.

The FHA has announced that the agency will stay open, but with reduced staff. Loan processing is already slowing down. The FHA has also stated that the multi-family lending component will be more negatively impacted, and could shut down lending completely.