On Tuesday, the Federal Housing Administration (FHA) called on all approved mortgagees and lenders to assist federal workers and contractors impacted by the federal government shutdown, which entered its third week on Monday.
In a letter to lenders and approved mortgagees, FHA Commissioner Brian Montgomery said that FHA expected mortgagees to help borrowers experiencing a loss of income. The FHA encouraged all approved mortgagees and lenders to waive late fees for affected borrowers and suspend credit reporting on borrowers nationwide who have been affected by the shutdown.
"In accordance with its longstanding policy, FHA expects mortgagees to assist borrowers experiencing a loss of income to the greatest extent possible by extending special forbearance plans to borrowers impacted by the shutdown, and fully evaluating borrowers for available loss mitigation options to avoid foreclosure whenever possible," Montgomery said.
Unpaid federal workers owe $438 million in mortgage and rent payments in January as the partial government shutdown enters its third week, according to a study by Zillow. The study said that an estimated $249 million is paid in monthly mortgage payments by homeowners who are federal workers. Citing a recent analysis by HotPads, Zillow said that federal workers who rented pay about $189 million for housing each month.
"Like Americans in the private sector, many federal employees rely on each and every paycheck to cover critical expenses, including housing. In many parts of the country, housing affordability is already stretched and a single missed payment can begin the long process toward foreclosure or eviction–which has long term impacts on an individual's finances and long-term economic prospects," said Aaron Terrazas, Senior Economist at Zillow.
Giving her insights on the impact of the shutdown on the market, Danielle Hale, Chief Economist, Realtor.com said that the shutdown reduced or delayed income for furloughed government workers which "can deplete savings and increase debt as workers struggle to pay rent, mortgages, and living expenses."
Hale said, "If the current shutdown continues for a few more weeks, the impact on wages could lead to slower and possibly fewer home sales. A lengthy shutdown could also cause home prices to soften."
The Zillow study also revealed that the shutdown was affecting homebuyers as well with the endorsement of loans likely to be delayed thanks to the Federal Housing Administration (FHA) operating with limited staff. This could mean that some loans don't close and can leave buyers unable to complete their purchase. The analysis found that around 3,900 mortgage originations were processed each business day for loans backed directly by the Federal government agencies such as the FHA and the Rural Housing Service.
"Housing will be impacted a delay in mortgage closings or the inability for buyers to obtain specific loans, such as a USDA loan," Hale said. "Consumer confidence can also take a hit when the government shuts down, which can contribute to slowing home sales and prices.”
Looking at the markets that were most likely to be affected by the shutdown, Realtor.com said that the metro areas of Washington-Arlington-Alexandria, Virginia Beach-Norfolk-Newport News, El Paso, Bakersfield, Baltimore-Columbia-Towson, San Antonio-New Braunfels, and San Diego were some of the large markets that were likely to see a potential income and mortgage impact.
Read more about how banks and credit unions are assisting borrowers during the shutdown: