The Federal Housing Administration (FHA) has had to prioritize loan commitments due to the government shutdown and is processing them at a much slower rate, which means many people may have to wait weeks or months before their deals are finalized. This could derail plans completely, especially if the delay stretches on while interest rates continue to rise. FHA prioritization puts Hurricane Sandy projects first, followed by affordable housing projects on strict deadlines, and anyone behind that faces a significant delay. Experts say that even with an immediate funding resolution many people will now have to wait months. For more on this continue reading the following article from National Real Estate Investor.
If you’re waiting to close a Federal Housing Administration loan, the shutdown of the federal government that began October 1 is adding weeks or even months of uncertainty. The number of FHA borrowers affected by the shutdown grows every day.
“This is a time of year when the volume is heading towards its peak. There is a lot of pent up business,” says Eileen Grey, associate vice president for multifamily for the Mortgage Bankers Association. “Getting FHA back up and running is of critical importance.”
Some borrowers may have already been waiting for months to close FHA loans, if they haven’t already switched to another form of financing. Relatively simple refinance loans are the most at risk of further delay. FHA has placed a lower priority on loans to properties that don’t face deadlines for construction or subsidy. These properties do still face the risk of rising interest rates, however, and the delay could derail plans.
Officials are still going finishing up loans to apartment properties that have firm commitments with scheduled closings and final endorsements that have critical external deadlines, according to Gray. But loans waiting for their firm commitment from FHA to schedule a closing date will have to keep on waiting.
FHA ran out of its commitment authority for fiscal 2013 on September 17—however the agency’s commitment authority had been running low for some time. Back in June, as FHA approached the $25 billion limits on its commitment authority for fiscal 2013, officials set priorities for which loans it would commit to first—starting with financing for projects affected by Hurricane Sandy, followed by loans to affordable housing developments that faced strict deadlines, followed by loans projects to newly construct or substantially rehabilitate multifamily projects without income restrictions.
Refinance loans to multifamily developments that rent their apartments at unrestricted market rents went to the back of the line. A borrower whose property did not get its loan commitment from the FHA may have had months of waiting ahead of it until October 1, when lenders expected the start of a new fiscal year would replenish FHA’s commitment authority.
The government shutdown will keep adding days or even weeks of delay. Even after Congress passes a continuing resolution to fund the government for fiscal 2014, it may still take more than a week for the money to become available for FHA to make loan commitments. “It takes time to go through the Treasury—so it’s not immediate,” says David Cardwell, vice president of capital markets for the National Multi Housing Council.
Even a continuing resolution might not be enough to help market-rate projects close refinance loans with the FHA. A continuing resolution that only lasts a few weeks, which several legislators have proposed, would not be enough to clear the backlog of higher-priority deals and begin to close market-rate refinance deals.
“You need a long-term continuing resolution to really start doing those deals… say six months,” says Cardwell.
Fortunately, many multifamily borrowers knew the risk of this kind of delay back in June, when HUD announced how it would prioritize FHA loans for its dwindling commitment authority. “HUD was pretty forthcoming,” he says. “HUD should be given some credit for its communications skills.”
Some FHA borrowers could potential switch to another type of lender for their refinance. However, there may also be borrowers who prefer to stay with FHA, despite the delay—especially in their properties are located in markets where non-FHA lenders are less eager to make loans. “I think there are definitely borrowers whose properties are located in areas that aren’t well served,” says Grey.
This article was republished with permission from National Real Estate Investor.