FHA Shut Down - and Potential Impacts

The government of United States shut down FHA at 12:01 a.m. ET Tuesday 1st October, 2013. The shut down came into effect after lawmakers in the House and the Senate failed to agree on a spending bill to fund the government.

This forced 800,000 employees furloughed which is about more than 96% of FHA staff members. Overall the underwriting and approval process is expected to be slower than usual.

The shut down would not affect the mortgage market unless it continues for a long period of time. A limited number of FHA staff are still available to underwrite and approve new loans, People seeking conventional home loans are also affected by this shut down.Before closing on a mortgage backed by Fannie Mae or Freddie Mac, banks must verify a borrower's income with the IRS. But IRS operations are curtailed because of the shutdown.Lenders underwrite and fund the loans, FHA insure them.So In practice there should be little to no impact unless it is going to be a long shutdown.

Many of the biggest FHA lenders have the authority to make their own underwriting decisions and won't need to wait for the IRS documents and those firms can continue issuing mortgages.

Loan City Home Loans originator Manual Tobias said " I think, the short term impact of Government shutting down would be delays in closing the home mortgage loans. The impact would be minimal if shutting down process is short. The impact of long term shut down is actually difficult to predict and might affect the housing market and the economy."

Mortgage rates is closely related with the economy. If banks and mortgage lenders think the economy is slowing – as it likely will under a prolonged shutdown – they will lower rates to attract more business. If mortgage rates keep falling, this may be an opportunity for the potential homebuyers. There has been a post recently published by forbes.com.