The housing market may be impacted by the possibility of a government shutdown. The Wall Street Journal reported on April 7 that Housing and Urban Development Secretary Shaun Donovan told Senate lawmakers that he is “very concerned” that if the government shuts down as a result of lawmakers failing to reach an agreement on a budget, then lenders would be forced to stop making loans backed by the Federal Housing Administration, a government agency that insures home mortgages. Meanwhile, Fannie Mae and Freddie Mac — two government-sponsored entities — would not be affected by the shutdown since they remain legally separate from the federal government.
Investors Business Daily reported on April 5 that delinquency rates for nine out of 11 consumer loan categories fell during the fourth quarter in 2010. This was led by a drop in bank card delinquencies, according to the American Bankers Association. Home loan and home equity loan delinquencies held steady. James Chessen, ABA’s chief economist, says he is “feeling hopeful” about further declines in delinquencies as job growth improves.
On the commercial loan front, the Wall Street Journal reported the same day that delinquency rates on commercial mortgage-backed securities hit a record high last month. Data from Trepp LLC, a loan research-service firm, showed that, in March, 9.42% of commercial loans have missed payments. Many of these landlords had taken out these loans during the peaks of 2005-2007, according to the WSJ. Since then, the real estate market tanked and the landlords have been unable to pay off the loans as they have come due.
The stricter lending requirements have already started to make an impact on the homebuying front — and not in a good way. The latest data from the Federal Reserve shows that one out of four mortgage applications were rejected. Lenders are now requiring higher credit scores and down payments from applicants; some potential borrowers who may have one or two blemishes on their credit report are being denied credit. Mike D’Alonzo of the National Association of Brokers said this will reduce the demand for houses. Anthony Sanders of George Mason University says this has resulted in up to 30% of potential homeowners to sit on the sidelines.