Shutdown derails real estate deals
In small towns and rural communities where more borrowers are relying on mortgages backed by the U.S. Department of Agriculture, the federal government shutdown has put the brakes on deals that might otherwise be headed for closing.
Lindy Sgambati, an agent for Keller Williams in Westmoreland County, has two real estate transactions caught up in the ongoing animosity between the White House and Capitol Hill that has turned into the longest government shutdown in U.S. history.
“The frustration I have as a Realtor is you never want to go to your client and tell them the closing is being delayed,” Ms. Sgambati said. “That’s one of your worst nightmares. And I had to pick up the phone and call my client and let him know that the closing is on hold due to the government shutdown, being that the buyer is utilizing a USDA loan.”
Ms. Sgambati is representing the seller of a singlefamily house in West Newton who incurred substantial out-of-pocket expenses to fix up the house in order to flip it.
Since the buyer can’t move forward with the purchase, the seller can’t buy a new property he has under contract. He needs the cash from the sale of the first house.
The closing on the West Newton house had been scheduled for Jan. 18, but there isn’t much chance of that working out at this point. Ms. Sgambati’s client has until Jan. 31 to buy the new investment house or the seller of that property has said he will move on and accept another offer.
“The clock is ticking and it’s a true domino effect because it affects multiple people and multiple deals,” she said.
More than 800,000 furloughed federal employees have been hit hard by the ongoing shutdown, which began Dec. 22. Federal workers missed their first paycheck last week and the financial hardship could drag on indefinitely as politicians squabble over how to fund a border wall.
But the ripple effects of the shutdown have spread pain to other corners of the economy served by government agencies that are closed. The USDA provides food assistance to consumers, aid to farmers and offers loans that help people who live and work in rural America.
Home loans offered through USDA Rural Development offer exceptionally attractive terms, such as zero down payments and favorable interest rates. The program was created in 1990 to boost rural economies by helping low- and moderate-income rural residents build or buy safe, affordable housing.
Thousands of home buyers use the financing each year, although it represents only a tiny sliver of the total housing market. The 100 percent government-backed mortgages are only available for homes located within USDA-eligible geographic areas.
Metropolitan areas are generally excluded from USDA programs, but pockets of opportunity can exist in suburbs. Rural locations are always eligible. In the Pittsburgh region, USDA home loans are generally available in Butler, Beaver, Washington, Westmoreland and Fayette counties.
For the people who were counting on the government program, the shutdown has led to unanticipated complications.
Julie Sebock, president of the Butler County Association of Realtors, described a single father with a young son who has been unable to close on a USDA-guaranteed loan in Butler.
The sellers have already relocated. To keep the transaction on track, the sellers have allowed the man and his child to move into the house prior to closing.
“Everybody is working together,” Ms. Sebock said. “Everybody will be able to ride things out. I believe at this point most of the transactions involving USDA will work out. We need to give it the time.”
People who have applied for a Federal Housing Administration or Veterans Administration loan are less likely to have major problems than those using the USDA program because institutional investors — such as Wells Fargo and JP Morgan Chase — who purchase the mortgages in bundles are allowing lenders to close the loans without some of the documentation they may need from the government agencies.
For now, the investors are willing to wait and obtain whatever documents are missing at a later time.
“There has been no real effect on any mortgage loans other than USDA loans, which are rural development loans,” said Kevin Laird, manager of secondary markets for O’Hara-based Howard Hanna Real Estate Services. He said USDA loans probably represent less than 1 percent of the company’s business.
Justin Rosenal, senior sales vice president at Union Savings Bank in Gibsonia, said, for now, FHA, VA and conventional mortgage loans are closing and everything remains at status quo.
“But anything can change,” Mr. Rosenal said. “If the government shutdown stays in effect, other government offices could close, which would then affect those loans. For instance, if the Veterans Administration shuts down, we won’t be able to close VA loans or USDA loans.”