Government Shutdown? The Impact on Banks Offering FHA Loans

With the possibility of a government shut down looking more and more likely, the Wall Street Journal is reporting that some banks will stop originating new loans backed by the Federal Housing Administration until it’s resolved.

J.P. Morgan Chase told the WSJ that it will close loans already in the pipeline but would not otherwise originate new loans during a government shutdown.  Wells Fargo, the nation’s largest originator of reverse mortgages, said that it “would expect to be able to take applications and close loans provided that a shutdown doesn’t continue for any extended period.”

During a town hall discussion earlier this week, President Obama warned that a shutdown could have an impact on the mortgage market. “It may turn out that somebody who was trying to get a mortgage can’t have their paperwork processed by the FHA and now the person who was going to sell the house, what they were counting on, they can’t get it,” he said.

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If Republicans and Democrats can’t strike a deal by Midnight on Friday, delays at FHA are likely.  Lenders could still originate HECM loans, but they would be unable to pull new case numbers and have to wait to obtain mortgage insurance certificates according to HousingWire.

“We believe it is very likely that loans will not be endorsed and mortgage insurance certificates will not be issued in the event of a shutdown,” said analysts form Bank of America Merrill Lynch in a report.

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