The last time we went through a government shutdown in 1995, it was a pain, but not a panic. With Monday's news that the government is in the midst of a shutdown, it's important to remember that all mortgages purchased and securitized by Fannie Mae and Freddie Mac will not be affected, since their operations are paid for by the fees charged to lenders and borrowers.
Others may not be so lucky. The six points below illustrate how government-affiliated mortgage loans and critical steps throughout the loan process may be impacted:
1. Federal Housing Administration (FHA) loans: With the shutdown, we may see delays, but not a complete stop to FHA loan closings. A report from the U.S. Department of Housing & Urban Development (HUD) has stated that FHA's Office of Single Family Housing will remain open for business, albeit with a smaller staff. The office will continue to endorse loans and it doesn't expect the impact on the housing market to be "significant, as long as the shutdown is brief."
2. Department of Veterans Affairs (VA) loans: Like the FHA, disruption is possible, but not absolute. The VA will continue to guarantee mortgages for Americans who have served in the military, since these loans are funded by user fees. It warned, however, in its Sept. 25th contingency plan, that Loan Guaranty certificates of eligibility and certificates of reasonable value may be delayed.
3. IRS Tax Transcripts: If a loan requires the verification of at least one previous IRS tax return, this process may be delayed. While prior years' tax transcripts can be ordered online, there is no indication whether an automated fulfillment system will be impacted.
4. Verifications of Employment, for Government Employees: If a federal government employee is seeking a mortgage, and his employment verification is required prior to closing, a lender may be unable to verify this during a shutdown.
5. FEMA Homes: Homes in flood zones would not be able to close, as flood insurance could not be obtained.
6. USDA Loans: During the shutdown, the Department of Agriculture's doors will be shuttered. According to the USDA, no new housing loans or guarantees will be issued through its Rural Development programs. The USDA has also warned that a long shutdown will result in construction setbacks and "a substantial reduction" to available rural housing relative to population.
Brady Webb is a certified mortgage planner with American Mortgage Solutions and president of the Kentucky Association of Mortgage Professionals. He may be reached by phone at (502) 327-9770 or e-mail [email protected]