Smith, who is buying the new house in Port Orange, Florida for $162,000, said his original purchase date at the end of September was delayed because the USDA was already backed up. Now the 4.1% rate he locked in 90 days ago has expired and it will cost him to lock it in for another 30 days. The rate offered by his bank is now about 3/8 of a percentage point higher.
“It has taken longer than it was supposed to already,” Smith said. “Everything is in boxes and I’m ready to go.”
His builder, Adams Homes, which also works in Alabama, Mississippi, Georgia, Tennessee, South Carolina and North Carolina, has cash tied up in these transactions that could be deployed in other projects, said Keith Clarkson, regional manager for the Florida east coast division of Adams Homes. The agency normally takes 15 to 20 days to provide letters of commitment, which are necessary for purchases to close, and the delays will likely be much longer when the agency begins issuing them again, he said.
“The whole company has a ton of USDA-eligible areas,” Clarkson said. “We take out construction loans or sometimes we build out of our own cash. Either way, we’re going to have a home tied up and won’t be able to get this house turned over to the new buyer.”
The immediate effect of the government shutdown won’t be felt beyond the disruption to home-sale transactions currently in the works, Seiberg said in a telephone interview. Longer term, the value of real estate in rural communities will decline without USDA mortgages, he said.
“Over time, you’re going to have a backlog of buyers and borrowers who are hoping to get the loans, and in those rural markets that’s going to matter,” Seiberg said. “It’s going to put downward pressure on home prices in those rural areas and it’s going to bring the market to a standstill.”
Many states with economies dominated by agriculture escaped the housing crash, registering small gains as prices were plunging in much of the rest of the country. Since the crash, prices in Iowa and Nebraska have gained about 5 percent, reaching records in the second quarter.
The USDA closed down its website and telephone calls to its headquarters in Washington and its mortgage servicing center in St. Louis, Missouri, aren’t being answered. For now, a skeleton staff is working to process mortgage payments, administer escrow accounts and preserve foreclosed properties.
“USDA is the be-all and end-all for some of these communities,” said Fine, of the community bankers group. “People in most rural areas are culturally very comfortable dealing with the USDA, so it’s natural they would rely on it for mortgages.”