Zillow: Unpaid federal workers will owe $438 million in mortgage, rental payments in January

A new report by Seattle-based Zillow says the effects of the federal government shutdown on the housing market are wide-ranging and personal – putting thousands of unpaid workers nearly $438 million in arrears on their monthly mortgage or rent.

According to recent analysis by the West Coast real estate consulting and research firm, about 800,000 federal workers that aren’t being paid due to the federal shutdown still must find ways to pay for their housing as the work furlough heads into its third week.

Zillow estimates that federal employees who are not being paid during the shutdown and own their homes pay about $249 million in monthly mortgage payments. An analysis also found that renters within that group pay about $189 million for housing each month.

“Like Americans in the private sector, many federal employees rely on each and every paycheck to cover critical expenses, including housing. In many parts of the country, housing affordability is already stretched and a single missed payment can begin the long process toward foreclosure or eviction – which has long term impacts on an individual’s finances and long-term economic prospects,” said Zillow senior economist Aaron Terrazas.

Zillow notes that the Federal Housing Administration is operating with limited staff and warns that endorsement of loans may be delayed. That could mean some loans don’t close, as that decision depends on the flexibility of individual lenders, leaving buyers unable to complete their purchase. Many lower-income and/or first-time buyers opt for the FHA-insured loans because they often allow for smaller down payments and offer more forgiving credit-score requirements than conventional loans.

In addition, the shutdown could lead to administrative delays associated with loans backed by Fannie Mae and Freddie Mac, two independent agencies that insure the vast majority of mortgages. Those include lenders unable to get verification of employment for borrowers who are federal employees, and potential IRS delays verifying borrower incomes, which could lead to loans being denied.

In a notice after the government shutdown went into effect before Christmas, the U.S. Department of Housing and Urban Development said it does not expect a significant impact if the shutdown is brief. However, the federal agency’s 2018 contingency plan said a “a government shutdown would deeply impact the millions of families in need assisted by HUD programs.”

Zillow estimates that about 3,900 mortgage originations are processed each business day for loans backed directly by federal government agencies such as the FHA and the Rural Housing Service. It isn’t clear what portion of those are delayed – or for how long – because of the limited staff during the shutdown, but as many as 39,000 mortgages could have been affected as of Tuesday (Jan. 8).

“It also could have a significant impact on the overall housing market if it continues to drag on and furloughed workers who also are would-be buyers get cold feet in the absence of paychecks,” said Terrazas. “Buying a home is a huge leap of faith for many, as they bet on continued job security and steady income to finance their home, and consumer confidence is paramount.”