Government shutdown threatens certain home loans

A sign regarding the partial shutdown is posted on the door at a closed USDA office in Boydton, Va.

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Real estate agents and mortgage professionals whose customers are in the process of buying homes using a certain federally-backed loan program are on edge as the government shutdown threatens their ability to close deals.

The U.S. Department of Agriculture, which backs home loans in rural areas, is not issuing new mortgages and for some homebuyers the clock is ticking.

Sommer Kelley, a transaction manager with Hutson Real Estate, is working with a buyer who went under contract last week on a house in Sweeny, a small town in Brazoria County, south of Houston.

The buyer was approved for a USDA loan before the government shutdown, but now the deal is in jeopardy and the buyers could lose the more than $1,000 they will have spent on appraisals and inspections.

“Basically we're kind of stuck,” Kelley said. “Their funds will not be available until after the government shutdown.”

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USDA mortgages offer attractive interest rates and 100 percent financing, but they make up a small percentage of the market locally.

“If you took the entire Houston marketplace and looked at what areas are eligible for USDA loans it's probably less than 5 percent, maybe less than 2 or 3 percent,” said Chance Brown, owner of CB&A, Realtors.

Steve Head, owner of Texas Premier Mortgage in The Woodlands, said conventional loans backed by Fannie Mae and Freddie Mac, as well as federally-backed VA and FHA loans, are still closing. Head is still processing USDA loans, but he won’t be able to close them until the shutdown ends.

For now, Head said, the situation is more of an aggravation.

“It's still so new, and this has happened before so nobody really freaks out,” he said. “If it goes on another two or three weeks, people's anxiety levels will get raised.”

As a real estate broker, Brown said he hasn't been hurt by the shutdown, but he’s heard stories of lenders having trouble getting copies of tax returns, which are used in loan approvals.

“On the Realtors side, it's not really causing any issues yet, but once closings start getting delayed because of these lending issues,” he said. “that's when we're going to have to work on it.”

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He said the bigger concern was when the Federal Emergency Management Agency stopped issuing flood insurance — a policy the agency quickly reversed. .

Homeowners in floodplains are required to have flood insurance, and the National Association of Realtors said some 40,000 home sales are lost every month flood insurance is not available.

Houston mortgage banker David Krichmar said at the start of the shutdown, it was difficult to process loans for borrowers who were self-employed because the IRS was not releasing financial transcripts necessary to verify incomes.

But that only lasted a little over a week, he said, because the IRS essentially restored the automated system where transcripts are accessed.

nancy.sarnoff@chron.com

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