Impact of U.S. Government Shutdown on Real Estate
Welcome to the Real Estate Espresso Podcast. I’m your host, Victor Menasce. On today’s show, we’re discussing the effect of recent U.S. federal government policy changes and the government shutdown on real estate.
Several government agencies involved in commercial funding include the U.S. Department of Agriculture, Department of Housing and Urban Development, Department of Veterans Affairs, Federal Housing Finance Agency, and the Small Business Administration. Loan applications involving Fannie Mae and Freddie Mac also rely on reports generated by government agencies that are presently closed. All of these financial sources are either delayed or ceased.
After recent policy changes that have affected loan approval since the most recent federal elections, financial support might have disappeared altogether for certain projects, such as a USDA loan with an energy component in a USDA qualified area.
With regard to the Small Business Administration (SBA), they implemented numerous policy changes on March 7th of this year, affecting all loans. I’m not going to read all six pages to you due to time constraints, but one of the highlighted segments states that SBA financing is limited to businesses with a 100% beneficial ownership by citizens of the US, US nationals, or lawful permanent residents – so-called green card holders.
This means all foreign investors are forbidden from investing in projects that have any form of SBA financing, even if the project is 99% owned by US citizens. That 1% foreign ownership would disqualify the loan under the SBA program.
Now, let’s discuss the government shutdown. During a shutdown, the SBA ceases most of its lending and investment operations, including new loan processing for both the 7A and 504 loans. This is because the agency’s non-essential employees are furloughed, causing underwriting and approvals to come to a halt.
If a borrower is refinancing an existing loan, that new loan might be a HUD loan or an SBA loan. In case of a refinance, the existing lender might not have an extension clause that becomes effective in the event of a government shutdown. This cancels out the alternative, potentially putting the borrower into a technical default situation.
After the return from the shutdown, there is likely going to be a backlog of transactions that will take time to address. So the delay could extend beyond just the number of days of the shutdown.
We often don’t think a government shutdown could affect real estate, but from first-hand observation, the impact can be very real. Remember that as you go about your day. Have a great rest of your day. Go make some wonderful things happen, and we’ll talk again tomorrow.
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