“This is the worst time that we could introduce that uncertainty into this fragile housing market,” Donovan said.
The FHA, part of Donovan’s department, oversees mortgage insurance on loans provided by agency-approved lenders. The insurance provides lenders with protection if homeowners default on their loans.
FHA-backed loans are frequently used by first-time homeowners who meet required criteria, Donovan said. The agency backed about 40% of loans used for home purchases in 2010, he said.
Donovan said there is a substantial risk in a shutdown that lenders will not fund loans backed by the FHA — especially if it lasts for a long period. Many lenders may decide to not close on the loans, he said.
More broadly, Donovan echoed the administration’s recent refrain, saying he worried a shutdown could imperil the progress the economy has shown in the past few months.
Americans trying to buy or sell homes would be at risk if Congress doesn’t reach a deal by midnight on Friday, Donovan said. A partial shutdown would ensue starting Saturday if Congress can’t agree on a funding package for the federal government.
Macro-level worries
Donovan also said the FHA plans to monitor the housing market closely during the critical spring and summer buying seasons because of fears of a double-dip recession.
“Certainly the data that we’ve seen over the last few weeks have raised concerns about where the market is going,” he said.
There has been a consistent decline in home prices, but there is some information through pending home sales that the pace of sales might start to increase, he said.
Mortgage lenders helping families stay in their homes are critical in avoiding another recession, Donovan said.
It’s also important that the agency improve enforcement capabilities in order to weed out bad lenders, he said.
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