Sector Snap: Most homebuilders stocks rise

NEW YORK (AP) -- Shares of most homebuilders rose Tuesday after the federal agency that guarantees about 30 percent of U.S. home mortgages signaled it will continue to back mortgages for now, even during the government shutdown.

The Federal Housing Administration, part of the Department of Housing and Urban Development, insures more than $1 trillion in mortgages for millions of low- and middle-income borrowers. The FHA had said previously that it wouldn't underwrite or approve any new home loans during the anticipated partial shutdown of the federal government, which began Tuesday. But the agency later changed that policy, saying Friday in a written update to HUD's contingency plan that it will continue to guarantee single-family home mortgages "as long as the shutdown is brief" and its funding lasts.

But if Congress isn't able to reach agreement over the new health care law and the federal budget and the shutdown drags on, exhausting the FHA's funding, "We do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market," the agency said.

The FHA plans to focus on single-family home loans during the shutdown, but will be setting aside loan applications for multi-family properties such as apartment buildings.

Most FHA-backed home mortgages are for first-time homebuyers.

Sterne Agee analyst Jay McCanless said in a note Tuesday that despite the FHA's policy change, he believes first-time home borrowers and builders catering to them face the greatest risk of disruption to their business during the shutdown. McCanless cited Lennar Corp., Beazer Homes USA Inc., KB Home, MDC Holdings Inc. and D.R. Horton Inc. as fitting that category, getting at least half of their sales and closings from first-time borrowers.

Here's how some homebuilders were faring in afternoon trading:

Lennar rose 22 cents to $35.62.

Beazer stock added 31 cents, to $18.31.

KB Home ticked up 22 cents to $18.24.

MDC gained 8 cents at $30.09.

D.R. Horton slipped 10 cents to $19.33.

McCanless also said Meritage Homes Corp. and Ryland Group Inc. face risk in the shutdown because some of their customers rely on mortgages backed by the FHA. However, with MTH having an average 90 percent of its customers buying second or later homes and Ryland an average 70 percent, they are less vulnerable to a shutdown.

Meritage shares added 6 cents at $43.01.

Ryland advanced 43 cents to $40.97.