With that uncertainty as a backdrop, let’s clear the air and point out a couple ways the shutdown really does impact the mortgage market:
1) FHA loans will be affected – If you’re a consumer waiting on a Federal Housing Administration (FHA) loan, you could be out of luck for now. In fact, approved mortgages will certainly be slowed while the FHA is shut down, even as it provides other services to the public.
The reason is this. With any FHA loan, mortgage services firms have to order a FHA case number, prior to an appraisal on the home. With the FHA’s lights out, those case numbers can’t be processed. Expect that process to take longer with fewer hands on deck.
2) I.R.S. documents out of reach – Another consequence of the U.S. government shutdown is the inability of mortgage firms to verify a borrower’s income via his or her U.S. tax returns. By law, any mortgage loan approval is subject to the review by the mortgage lender of at borrower’s federal tax returns, and must be verified by the I.R.S. through a 4506 Transcript. With I.R.S. staffers at home, that process is stalled as tax agency workers would be unable to verify tax return documents.
Some industry experts say the damage here may be minimal, depending on the size of the lender.
3) Fannie and Freddie open, but caveats apply – It’s business as usual for Fannie Mae and Freddie Mac, and for its regulatory arm, the Federal Housing Finance Agency, according to the government shutdown updates section of realtor.org, the National Association of Realtors web site.
Both Fannie and Freddie “have announced relaxed procedures that will permit closings to go forward without federal verification of Social Security numbers and IRS tax transcripts,” according to realtor.org. There is a caveat – mortgage lenders still need federal verification of both a borrower’s Social Security number and his or her IRS transcripts before getting any green light on a mortgage from Fannie or Freddie. (side note, the transcripts are one of the ways the lender does the “due diligence required by both)
Here’s where things grow more complicated.
The Social Security Administration is sidelined due to the shutdown, and any verification of Social Security numbers for mortgage applicants through the agency’s SSA Contingency Plan are also on hold.
“As with IRS income verification, policies vary among lenders, with many choosing to exercise forbearance during the shutdown period subject to subsequent verification,” adds realtor.org. Fannie Mae and Freddie Mac have also adopted policies to allow for mortgage closings, but they’re subject to subsequent, follow-up verification and prior to any purchase of the loan from Freddie Mac and Fannie Mae.
The birds-eye view?
The mortgage market should largely remain up and running during the government shutdown.
By no means it is a perfect scenario, but for home buyer, sellers, and real estate professionals, it’s certainly a survivable one.
Just remember, we are here to help.
All the best,
Sandy Krestan
PS. Our team is available on our hotline at 480-420-7107 or Sandy@TheKrestanTeam.com #GoodSoundMortgageAdvice
