After Congress failed to pass a continuing resolution over government funding, numerous agencies and programs were forced to shutdown. And though many of us have heard about the furloughs and widely-recognized parks being closed, not everybody understands the impact the government shutdown is having on the mortgage and housing industries. Before a home purchase can be completed, buyers typically require a mortgage loan from a lender. However, in order to process certain loans, lenders require tax transcripts and social security number verification through the federal government. With the shutdown in effect, this is all on hiatus.
To see how exactly this will affect home buyers and mortgage consumers, we sat down with Pete Zaft from the Mortgage Investors Group and discussed the situation. Here’s what he had to say:
Because the government shutdown is preventing lenders from obtaining tax transcripts directly from the IRS, lenders face a dilemma. Do they close the loan without tax transcripts from the IRS or do they wait for the shutdown to end? This is something each home buyer will need to ask their lender before going through the loan process. If the mortgage lender sells loans directly to Fannie Mae, Freddie Mac, and the FHA, the lender has the “option” to close the loan and receive tax transcripts after closing (once the government shutdown is over). If the lender decides to take on this risk, it is possible the lender will not have a salable loan if there are discrepancies in the qualifying income.
Rural development loans are on hold until the federal government offices reopen. The USDA website to check for eligible properties has also been temporarily shut down until their employees return to work. The service that verifies social security numbers is not operating during the shutdown. If during the mortgage process something arises requiring verification of a social security number it can prevent a loan from closing.
Different lenders will have different guidelines during this government shutdown and each loan is different, so it’s best to check in with your lender to see how they are handling your loan and if it is a possibility that your closing could be delayed. One thing for sure is the government shutdown will negatively impact the home buying process.
The Overlying Impact of the Shutdown
Just this summer, we were reading news of the housing recovery and positive signs in mortgage rates. Now, with the government shutdown, real estate’s recovery will certainly slow (if not taking a hit). Economists calculate that the shutdown will shave 0.1 percentage point from economic growth in one week, with costs accelerating as the shutdown progresses. Jay McCanless, an analyst with Sterne Agee & Leach Inc., believes that builders who cater to buyers that utilize FHA financing are most at risk of slowing sales.
Last Thursday, David H. Stevens (President & CEO of the Mortgage Bankers Association) issued the following statement about the shutdown’s effect on the housing market:
The federal government shutdown will have a growing impact on the housing market the longer it continues. If this shutdown is temporary, the ones affected most will be out of work federal employees. However the longer it goes, the greater impact it will have on borrowers, the housing market and the national economy.
Lenders processing loans that need tax transcripts, social security number verification, or FHA home loans face longer delays and reduced functionality from HUD, IRS, and the Social Security Administration. Different loan programs have different requirements, and these disruptions impact lenders in different ways, leading to confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance. There are significant impacts on multifamily lenders, as well. Rental housing properties awaiting FHA financing cannot move forward.
The furloughs can disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized.
Contingency Plans for the Government Shutdown
Though the government shutdown has suspended and slowed several federal housing and mortgage programs, there are contingency plans in effect (as dictated by the Office of Management and Budget). Here are some of the agency contingency plans:
Internal Revenue Service (IRS)
The IRS is closed and has suspended processing of all forms, including tax return transcripts.
Social Security Administration (SSA)
The SSA has closed and suspended most customer service functions. According to their contingency plan, verifying social security numbers through the Consent Based SSN Verification Service is suspended.
Federal Housing Administration
The FHA will endorse new loans in the Single Family Mortgage Loan Program, but it will not take new commitments in the Multi-family Program during the shutdown. The FHA will continue operational activities including paying claims and collecting premiums. Management and Marketing Contractors handling the REO portfolio will continue to operate. However, you can expect some delays with processing.
VA Loan Guaranty Program
Lenders will continue to process and guaranty mortgages through the Loan Guaranty program.
Government Sponsored Enterprises
Fannie Mae and Freddie Mac will continue to operate normally, as will their regulator, the Federal Housing Finance Agency.
For More Information
If you’d like more information about the affect on the real estate industry during the government shutdown, contact us today. We’ll be happy to answer any questions you might have!