If you are scheduled to close on an FHA loan or are in the process of obtaining one you should hope for the best and brace for the worst.
If lawmakers can’t reach an agreement on budget issues before midnight on Friday government will shut down and so will the Federal Housing Administration, which insures nearly half of all home loans that are being originated in the current market.
The Federal Housing Administration is part of the Department of Housing and Urban Development. It doesn’t issue loans directly but insures loans against defaults.
HUD says lenders will still be able to take new loan applications and close on FHA loans but they will have to wait until government resumes operations to insure those loans.
What does that mean for those who are scheduled to close on an FHA loan or planning on applying for a new loan the next week?
It means you will need luck.
Your lender can choose to close the loan and wait to insure it later -- or not. Some of the larger lenders say they plan to continue to close on FHA loans if it appears the shutdown will only last a few days.
“We expect to be able to take applications and to continue to close FHA loans in most cases,” says Tom Goyda, a spokesman for Wells Fargo. “But if it goes on for weeks it is unlikely.”
Rick Simon, a spokesman for Bank of America Home Loans says the lender “will continue originating and closing FHA and VA mortgages in the event of a short-term shutdown of the federal government.”
It sounds easier said than done.
Lenders seem to be under the impression that FHA’s online automated server, which processes approvals to insure the loans, will be operating during the shutdown.
Goyda said Wells Fargo officials are in communication with government agencies and their understanding was the FHA online system used to process files would continue to operate in the event of a shutdown.
But according to a HUD spokeswoman, if the government shuts down the FHA’s system will be shut down completely. That means lenders won’t even be able to start the FHA approval process or push an existing loan file through the automated system.
Rob Nunziata president of FBC Mortgages in Orlando, Fla., said he hoped FHA’s server would stay up during a potential shutdown so lenders could at least try to get them through the system.
“Without case numbers lenders can’t order appraisals,” he said. “If their system shuts down it will pretty much stop progress on all new files.”
Mortgage specialists say VA loans and USDA loans are likely to be impacted by the shutdown.
I’m trying to get more details on those. Check back later for more info.