So the news makes it look like the end of the world is upon us – and we’re all worried about the Post Office getting checks out on time to pay the bills, renewing our passports for the trip to Italy this summer or whether Grandma is going to get her social security check this month. And since this is a real estate driven blog, let’s take a minute and find out how the shutdown is changing the value of our homes. A big piece of our home value is based on buyers finding loans, and more than 90% of all loans are insured, underwritten or owned by our government, and one would be correct to think the shutdown will bring changes to this process. But maybe less than you’d think.
Morgan Brennan has written a piece for Forbes describing the situation:
Initially at least, the mortgage market is likely to be only minimally impacted. New loans will continue to push through most government agency pipelines. What will change is how long the process takes, as many agencies expect to experience delays.
The culprit? Mainly, getting qualified.
[I]f the government shutdown of 1995-1996 is any indicator, the process will take longer than usual. “Loan Guaranty certificates of eligibility and certificates of reasonable value were delayed,” the VA warned in its September 25th contingency plan.
Rumors of an FHA shutdown are unfounded, but have an unusual source:
Where there has been mounting concern is the Federal Housing Administration, which currently endorses about 15% of the entire single-family mortgage market. Several media outlets recently reported that the FHA would be unable to endorse any single-family loans and that no staff would be available underwrite and approve new loans.
That prospect would be somewhat worrisome – if it were actually true. The FHA’s Office of Single Family Housing will indeed remain open for business, albeit with a smaller staff. “FHA will be able to endorse single family loans during the shutdown. A limited number of FHA staff will be available to underwrite and approve new loans,” the report now states. In other words, other lenders’ loans will continue to be insured and some in-house lending will continue to take place at a reduced rate.
The reason for that mix-up: the initial draft of the U.S. Department of Housing and Urban Development’s contingency plan mistakenly stated that single-family loan operations would cease. The report was amended over the weekend.
Apparently, the FHA’s single family home unit is funded with through the next fiscal year, but this is not the case for the Multifamily Housing Office, so expect delays getting a loan for that condo.
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I ran across this article about the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) in patch.com:
In a newsletter posted on Tuesday (July 30), the Federal Emergency Management Agency (FEMA) announced the following schedule for increases in National Flood Insurance Program (NFIP) premiums.
The increases are a result of 2012 legislation aimed at putting the program on a more solid fiscal foundation and building a catastrophic reserve fund to provide for claims in years with unusually costly flood disasters. The NFIP has been operating with a debt of about $17 to $20 billion beginning with the massive storms of 2004 and 2005. Since then, and because of the borrowing done in those years, which is still being paid back, the program is forced to borrow to pay out flood claims for catastrophic events, including Sandy.
From FEMA’s website:
Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for some—but not all—policyholders over time. Homeowners and business owners are encouraged to learn their flood risk and talk to their insurance agent to determine if their policy will be affected by BW-12.
Not everyone is affected:
Owners of primary residences in SFHAs (Special Flood Hazard Areas) will keep the subsidized rates until the home is sold; the policy is allowed to lapse; a new policy is purchased; or a string of severe losses is experienced.
Post-FIRM rates for all zone classes will be unaffected by Section 100205 of the Biggert-Waters Act.
What to do? Call your insurance agent to determine your flood risk and your changes under the law. Also, check out http://www.fema.gov/flood-insurance-reform-act-2012