A government shutdown arrived Wednesday due to an intense partisan divide in budget negotiations, prompting bond investor activity that could lower mortgage rates but otherwise challenge the housing market.
Investors flooded further into the perceived safety of treasury bonds, putting downward pressure on rate-indicative yields as several government agencies pulled back “non-essential” services related to housing and furloughed workers, with potential for layoffs.
The 10-year yield typically correlated with the most common mortgage type was trading near 4.1% at deadline Wednesday morning, down from 4.15%. A slow private payroll report, which could carry additional weight if the public one Friday gets delayed, contributed to the drop.
However, some experts forecast that mortgage rates could rise if the shutdown persists over an extended period of time.
“Rates initially won’t be impacted by the shutdown; however, if it drags on, then investors will raise fears about the credit quality of U.S. debt, bond yields could go higher,” Melissa Cohn, regional vice president at William Raveis Mortgage, said in a press statement.
What follows are some of the agencies and groups that have released guidance or reacted to the impacts of the shutdown on housing:
Fannie Mae and Freddie Mac workarounds for government shutdown
Influential government-sponsored enterprise loan buyers Fannie Mae and Freddie Mac — which operate outside the federal budget process but interact with many public entities — set up several contingencies reflective of broad mortgage concerns.
The GSEs announced they were offering leeway and workarounds on borrower data verifications like paystubs, financial reserves, Internal Revenue Service transcripts, Social Security numbers.
Fannie Mae and Freddie Mac also are allowing servicers to extend forbearance to impacted borrowers.
Service limits at the Federal Housing Administration
The Federal Housing Administration’s Office of Single Family Housing announced that “some of its mortgage insurance programs will be operational but with limited services.”
The National Fair Housing Alliance decried HUD’s shutdown of enforcement and oversight related to Fair Housing Act and “responsible” artificial intelligence use.
FHA noted in a bulletin that its “actions and decisions about the operations that continue are governed by the U.S. Constitution, statutory provisions, court opinions, and Department of Justice opinions, which provide the legal framework for how funding gaps and shutdowns have occurred in recent decades.”
Contingencies for federal flood insurance policies
The American Land Title Association urged a resolution to a lack of authorization for federal flood insurance that plays a key role in lending, noting that is leaves “millions of Americans unable to obtain or renew flood insurance policies, jeopardizing home sales.”
Regulatory agencies for federal financial institutions collectively re-released past guidance allowing lenders to “continue to make loans that are subject to the federal flood insurance statutes when the National Flood Insurance Program is not available.”
However, lenders “must continue to make flood determinations; provide timely, complete, and accurate notices to borrowers; and comply with other applicable parts of the flood insurance regulations,” according to that guidance.
Lenders also “should evaluate safety and soundness and legal risks and should prudently manage those risks during the lapse period,” the interagency guidance stated.
The growth of private flood insurance may help lenders contend with the NFIP shutdown in some instances, but could still leave gaps in higher-risk areas.
