Budget impasse threatens FHA lending

Shutdown would put gov't-backed mortgage insurance on hold

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The budget deadlock and looming shutdown of the federal government wouldn’t affect Fannie Mae and Freddie Mac, but it could put the brakes on FHA and other government-backed loan guarantee programs.

The Obama administration has proposed $33 billion in spending cuts, while Republicans are reportedly pushing for $40 billion or more. House Republicans Thursday passed a bill to push back a shutdown by one week. But that bill includes spending cuts opposed by Democrats, and President Obama has threatened a veto if it’s approved by the Senate.

In the event of a government shutdown, the Federal Housing Administration "will not be able to endorse any single-family loans, and staff will not be available to underwrite and approve new loans," a HUD spokeswoman told Inman News.

Although so-called "full eagle" lenders vetted by FHA have direct endorsement authority, in the event of a government shutdown FHA would power down its automated systems for processing those loans, in effect suspending all lender insurance approvals.