Federal shutdown could cause delays in some Long Island home sales
The federal shutdown could leave some Long Island homebuyers in limbo, real estate professionals warn, as delayed approvals for government-backed mortgages and the expiration of the National Flood Insurance Program threaten to derail deals.
During the shutdown, the Federal Housing Administration and Department of Veterans Affairs will continue to guarantee home loans made by private lenders, the federal agencies said.
But certain buyers could face delays, including furloughed federal employees whose lenders might not allow them to close during a shutdown, said Andrew Russell, owner and founder of mortgage broker RCG Mortgage in Hauppauge.
Long Island has fewer buyers using government-backed loans than the rest of the country, Russell said, because buyers can pay less in private mortgage insurance on a conventional loan than on an FHA loan.
WHAT NEWSDAY FOUND
- Some Long Island homebuyers using government-backed mortgages could encounter delays related to the federal shutdown, industry experts said.
- The National Flood Insurance Program also cannot issue new policies or renew existing ones during the shutdown, which could jeopardize some real estate closings.
- A longer shutdown could lead to more significant effects on the real estate industry, one agent said.
He said furloughed federal employees face the greatest challenge from the shutdown, but believes the effect on Long Island's real estate industry will be minimal based on previous shutdowns as well as the COVID-19 pandemic when temporary furloughs affected workers.
"We might circle the runway for a bit. You might get a little frustrated, but at the end of the day you're still going to land and purchase this house," Russell said.
Some federal activities tied to loan approvals could be affected. Required appraisals for VA loans, which are completed by private, federally certified appraisers, may take longer to process during the shutdown, according to the National Association of Realtors. Some approvals for condo buyers using FHA loans may also see delays, the NAR said.
The consequences for homebuyers could become more pronounced the longer the shutdown continues, said Bryan Karp, an associate broker at Coldwell Banker American Homes in Smithtown.
“I think it’s no big deal if the government gets reopened in a week or two weeks," he said. "But I think if this is going for a month, it’s absolutely going to screw things up."
Applications for government-backed home loans, such as those issued by the Federal Housing Administration and U.S. Department of Veterans Affairs, represented about one-third of all mortgage applications during the week ending Sept. 26, according to the latest data from the Mortgage Bankers Association in Washington, D.C.
Government-backed loans allow smaller down payments than other types of mortgages and are more common among buyers purchasing lower-priced homes, Karp said. In Long Island’s competitive real estate market, where about half of all homes sell for above asking price, the shutdown could give sellers pause about accepting an offer from a buyer using a government-backed mortgage, Karp said.
“Home sellers that have savvy agents or are savvy themselves may look twice on a VA deal or an FHA deal because it might be halted a week or two,” Karp said.
That presents an additional challenge for buyers with less cash who are already navigating a difficult market to buy a home, said Jeff Ostrowski, a housing market analyst for Bankrate.
“This is hitting harder for those folks who are stretching the most to get into the market,” he said.
What flood-zone buyers need to know
Buyers purchasing in areas of Long Island where mortgage lenders require they have flood insurance could also be affected. Funding for the National Flood Insurance Program expired Sept. 30, and homebuyers cannot obtain new federal policies or transfer a seller’s policy into their name during the shutdown, according to FEMA.
Federal data show nearly 72,000 active federal flood policies in Nassau and Suffolk counties as of the end of August.
Federal regulators told lenders last week they can make loans on homes that would otherwise require flood insurance during the shutdown while the National Flood Insurance Program is not available.
Homebuyers in flood zones should speak with their insurance brokers about their options, said Aaron Stein, owner of insurance agency Norton & Siegel in Babylon.
Stein’s office helped a client closing on a home purchase last week who needed to take over a flood policy from a seller. He said his office submitted forms to FEMA, which advised it could not complete the transfer but would process the request when the agency reopens. The buyer was still able to close, Stein said.
He said buyers could explore private flood insurance but some companies might not offer policies in the highest-risk locations closest to the water.
“It’s a big deal,” Stein said. “Because a lot of Long Island, their flood insurance is going to be with FEMA for the foreseeable future.”
Homeowners with policies that expire during the shutdown won't be able to renew their coverage until the government reopens and could face a gap in coverage if they didn't renew before the shutdown.
“It’s very disconcerting,” Stein said. “People don’t like to be uncomfortable about whether they’re covered or not.”
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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