Thursday, October 10, 2013

Shut-down Slams Door on USDA Mortgages

Shut-down Slams Door on USDA Mortgages



The week-old federal government shutdown is a disaster on many levels. For rural America, one major impact is in the area of housing.
For the near future, low- and moderate-income homebuyers who have applied for mortgages guaranteed or made directly by the U.S. Department of Agriculture (USDA) Rural Housing Service are out of luck. So are very low-income homeowners seeking repair grants or loans.
The financing these homebuyers need cannot close because no USDA rural housing staff are working at the local level. Banks make the guaranteed loans, which are like the mortgages insured by the Veterans Administration or the Federal Housing Administration. But USDA staff have to approve the guarantees and provide the necessary paperwork to the lender before the loan can be issued. With no staff, there can be no approvals.
In FY 2012 USDA guaranteed about 145,000 of these loans worth $19.2 billion, helping substantially with the housing recovery. USDA made almost 8,000 direct homeownership loans totaling just under $900 million.
Plus USDA Rural Development local offices also make a number of other grants and loans for housing, community facilities, businesses and utilities. But not this week. Since October 1 and the shutdown, none -- zero -- of the 3,336 USDA Rural Development field office staff have been working. All were declared “non-essential” and are furloughed. So no loans or grants in any programs can move forward.
Mainstream media institutions, which usually pay little attention to rural concerns, are beginning to cover this issue:
  • A poignant summary of the problems comes in a letter-to-the-editor in the October 8Washington Post from a woman in Maine who is pre-approved for a USDA mortgage:
    Each day that the government shutdown continues means that I am closer to losing the chance to buy my first home. ... Losing this home would crush our spirits. It’s been a long road to homeownership for us, and to even consider that we will lose this home because of politics in Washington makes me sick to my stomach.
  • On October 5 the Washington Post had a page-one article on the stalling of federally insured home loans due to the shutdown. The article uses as a prime example a young Virginia couple's likely loss of their USDA-backed first-home purchase.
  • Huffington Post blog on October 4 made similar observations about USDA loans.
  • Bloomberg news story October 8 calls the stoppage of USDA loans “an early warning of how the government’s first partial closing in 17 years could put a drag on the wider housing market.”
  • And the St. Louis Post-Dispatch's article on the impact of the government closure on the housing industry leads with a mortgage broker who says USDA loans account for 12-13% of his company's business. 
Much of the Department of Agriculture appears to have disappeared during the shutdown. USDA's web site shows nothing but a short notice about the closure. Housing and Urban Development’s site has more information but no entries after September 30. Some HUD FHA-insured home loans may also be slower to close during the shutdown. Veterans Affairs-insured mortgages are not affected so far. VA home-loan offices are currently open. (Politicians panic at the thought of cutting services to veterans.)
Photo by Bob Nichols/USDAChristopher, Hope, Makenna and Natasha Goetz play on the deck of their home in Garnett, Kansas. The Goetz's used a USDA Rural Development loan guarantee to purchase their home.
The Office of Management and Budget's posted contingency plans show that 100% of USDA Rural Development local and state office staff were furloughed on October 1. A total of 53 Rural Development staff in the agency's Washington, D.C., headquarters and the St. Louis finance office, out of 1,394 normally in those locations, are still on the job. At HUD, 337 of 8,709 employees are still working.
The plan for USDA Rural Development said no new loans or guarantees would be made without an appropriation, and all offices would close except for Washington, D.C., and the St. Louis finance office. St. Louis is the contact for servicing on existing loans.  
So check back later. They may be open; they may not. For now, that’s all homebuyers and the housing industry can do.

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
kentuckyloan@gmail.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*

Louisville, KY 40222*