Long federal shutdown could create crisis for home buyers, brokers say

Category Property Finance

South Florida homebuyers applying for mortgages would see little affect from a brief shutdown of the Federal Housing Administration, local brokers said Friday.

But anything longer than a week to 10 days could cancel closings and backlog the system nationwide causing significant delays in home purchases.

Congress was still negotiating late Friday to avoid a shutdown.

"If it's a short shutdown, it won't be the end of the Earth," said Skip McDonough of Family Mortgage in Jupiter. "You go two weeks, it will really have a hampering affect on the whole process."

Housing and Urban Development Secretary Shaun Donovan told Senate lawmakers Thursday that he is "very concerned" that a government shutdown could force lenders to stop making loans backed by the FHA. The FHA guarantees more than one-third of all home loans.

Because the early part of the FHA process is online, brokers should still be able to apply and get case numbers for loans.

"Come Monday, even if the government shuts down, we'll still be doing FHA loans as usual," said Jerry Kislia, with Flagship Financial in Fort Lauderdale.

But some changes in the application, such as if a homeowner cancels a contract on a property to buy another, have to be entered by hand.

McDonough's also concerned about how a closure of the Internal Revenue Service could affect home loans. Most mortgages require the IRS to send a tax return to validate what is provided by the borrower. With no one to send the documents, loans would be at a standstill.

"You cannot close a loan without laying those documents down side by side," McDonough said.

On Friday, the nation's major lenders had varying responses to how loans would be affected.

Bank of America Spokeswoman Jumana Bauwens said loans will continue originating and closing "in the event of a short-term shutdown."

J.P. Morgan Chase said in a statement Friday that it will close approved loans already in the pipeline but would not originate new loans during a government shutdown.

To reduce the affects of a potential shutdown on its clients, Family Mortgage tried to expedite paperwork in case FHA's doors close.

"We moved up all the steps we do across the board," McDonough said.

Source: www.palmbeachpost.com