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Shutdown Turns Dream of Home Ownership Into Nightmare for Some

January 5, 1996

WASHINGTON (AP) _ With the partial government shutdown, the American dream of owning a home has become more of a nightmare for a lot of folks, especially first-time and low-income buyers, sellers, real estate brokers and even lenders.

The Department of Housing and Urban Development, all but closed since Dec. 16, has been unable to approve the estimated 30,000 applications for federal home mortgage insurance that have piled up.

``I don’t think they realize how many people they’re hurting,″ Colleen Beguin, a real estate agent in Phoenix, said of those responsible for the failure of Congress and the White House to reach agreement on a balanced budget plan or to call idled federal workers back from furlough.

Mortgage programs for veterans also were suspended because of the shutdown. About 1,100 applications for home loans from the Department of Veterans Affairs go unprocessed every day of the shutdown, officials said.

As a result, Ms. Beguin said she couldn’t prevent the foreclosure of a single-family home owned by a veteran who fell behind on his mortgage payments. The VA was closed and not able to process the paperwork for a new buyer.

Now, the veteran’s credit record will be stained by the foreclosure and the government will have to spend thousands of taxpayer dollars to improve the house before it can be sold on the open market, Ms. Beguin said.

``I’m worried that a lot of homeowners are going to be hurt by this, as well as sellers,″ she added. ``I’m very frustrated.″

Meanwhile, as HUD was being affected in numerous ways, payments to local governments and not-for-profit agencies to assist the homeless were continuing using leftover funds from the previous budget year.

The Federal Housing Administration lost its authority under the shutdown to continue insuring mortgages at the rate of 2,500 a day, HUD Secretary Henry Cisneros told a news conference Thursday.

With FHA backing, lenders can make mortgage loans to people who would not qualify for traditional lending programs, mostly first-time home buyers and low- to moderate-income people. The FHA program also allows these individuals to buy homes using relatively small down payments.

But with applications stuck in the pipeline, officials said, sales contracts could well be canceled and the dream homes people have eyed for months could be lost.

``This is no longer a matter of mild inconvenience,″ Cisneros said. ``Real Americans are being hurt, and there’s just no good reason for this.″

Lenders, too, have been hurt. The shutdown is interfering with their ability to continue selling bundles of mortgages to investors, which enables them to raise more capital to make more loans, officials said.

``FHA has been that initial step on the ladder for millions of people, and more and more people are going to find themselves shut out of the process,″ said Kirk Willison, senior vice president of Countrywide mortgage brokers.

Others believe a prolonged absence of mortgage backing from HUD and VA could deeply affect the building and housing markets, as well as the secondary industries that depend on it.

``That begins to put a serious crimp in the economy,″ said Warren Lasko, executive vice president of the Mortgage Bankers Association. ``That’s homes that don’t get sold, carpet and furniture purchases that are stalled.″

The shutdown also has kept HUD from raising money by providing ownership opportunities through the sale of homes it owns, Cisneros said. And he said the department has been unable to collect an estimated $5 million in payments on HUD-held mortgages or even mail out new bills.

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