: Government shutdown could leave thousands of federally backed mortgages in ‘limbo’

As if home buyers didn’t have enough to worry about.

In addition to elevated mortgage rates and higher home prices, Americans applying for government-backed mortgages may face unexpected delays in the event of a partial government shutdown.

As the new fiscal year approaches on Oct. 1 with no funding in place as lawmakers have yet to reach a deal, the Biden administration has already begun advising federal agencies to review and update their shutdown plans.

If Congress doesn’t pass legislation to renew funding by Sept. 30, the federal government will shut down at midnight, which would have significant implications for the U.S. home buyers.

Home buyers could face delays taking out a government-backed mortgage. People in the middle of closing on a home — who are taking on a Federal Housing Administration loan or a Department of Agriculture loan — would need the agencies to finalize their mortgage.

An estimated 2,528 home loans per day may be delayed in the event of a partial government shutdown, according to an analysis by Zillow exclusively provided to MarketWatch.

When the government shuts down, federal agencies work on a limited staff, so fewer applications get processed.

If those agencies halt operations, thousands of buyers may be left in the lurch, with the risk of their home purchase falling apart, if the sellers turn to other buyers who may have other sources of funding, or come with all cash.

An estimated 2,528 home loans per day may be delayed in the event of a partial government shutdown, according to an analysis by Zillow Z, -0.61% exclusively provided to MarketWatch.

“A government shutdown would leave some aspiring home buyers with outstanding loans in limbo,” Nicole Bachaud, senior economist at Zillow, told MarketWatch.

Read on: How a partial government shutdown would affect you

The 2019 shutdown, when the federal government closed for 35 days, was the longest in U.S. history. At that time, then-President Donald Trump wanted more funding for a border wall between the U.S. and Mexico.

Zillow economists Nicole Bachaud and Jeff Tucker noted then that when the government entered a prolonged shutdown in early 2019, government agencies were operating with limited staff and, hence, were experiencing delays.

In the fourth quarter of last year, the FHA originated 140,888 single-family loans, the Zillow economists noted, over 61 working days. That works out as an average of about 2,310 per day.

There were 54,603 U.S. loans originated by the Department of Agriculture Farm Service Agency and Rural Housing Service in 2022 over 250 working days, according to Home Mortgage Disclosure Act data. That’s equivalent to about 218 per day, the Zillow economists said.

A shutdown would have a disproportionate impact on Black home buyers, Bachaud and Tucker noted, as they rely more on the federal agencies for mortgages. In 2022, a quarter of the loans originated to Black home borrowers were FHA and USDA loans. In contrast, only 9% of the loans originated to white borrowers were from the FHA and USDA.

“Black borrowers would be expected to feel this most directly,” Bachaud added.

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