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Banks Ready for Shutdown Mortgage Fallout

NEW YORK (TheStreet) -- A government shutdown will curb mortgage processing at some large banks, especially if Uncle Sam goes dark an extended period of time.

A spokesman for the Federal Housing Administration told TheStreet that if the government does shut down it "will not be able to endorse any single-family loans, and staff will not be available to underwrite and approve new loans."

The FHA backs a large swathe of the single family and multifamily mortgages in the U.S. that are eventually underwritten by private banks.

Several banks are beginning to plan on how to handle their mortgage business in the event of a government shutdown.

"Based on our current knowledge, Bank of America Home Loans will continue originating and closing FHA and VA mortgages in the event of a short-term shutdown of the federal government," Bank of America (BAC) says in an email statement.

JPMorgan (JPM) says that it will not be able to originate new home loans, but will close mortgages that have already been approved by the FHS, a bank spokesperson says.

A Wells Fargo (WFC) spokesperson says that the bank will be able to take applications and continue FHA loans "in most situations."

"There may be circumstances that require the FHA to sign off on loans and in this case these loans will be delayed. If a shutdown goes on for an extended period we will have to reevaluate the situation," the Wells Fargo spokesperson says.

A representative from Freddie Mac said that business will continue as usual at the lender, "at least in the short term." Business at Fannie Mae is also expected to continue as usual, according to published reports.

--Written by Maria Woehr in New York.

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