How the Federal Government Shutdown is Impacting the Mortgage Industry
Written By: Joel Palmer, Op-Ed Writer
The federal government shutdown that began just before Christmas is so far having a minimal impact on the mortgage industry.
The National Association of Realtors surveyed its members on the shutdown’s impacts. Of the 2,211 members who responded, 75 percent said the shutdown had so far had no impact on their business.
Of those that were impacted:
•17 percent had a delay because of a USDA loan
•13 percent had a delay due to IRS income verification
•9 percent had a delay due to FHA loans
•6 percent had a delay due to a VA loan
“Closings are not happening due to some delays related to mortgage availability,” said NAR Chief Economist Lawrence Yun. “Another 11 percent are indicating their buyers are getting cold feet from the greater economic uncertainty caused by the government shutdown.”
Much of the potential impact has been mitigated by certain agencies continuing operations through the shutdown.
In late December, the Federal Emergency Management Agency (FEMA) allowed operations of the National Flood Insurance Program to resume. FEMA had initially halted operations despite the NFIP being reauthorized prior to the shutdown.
The American Bankers Association (ABA) was one of several groups to advocate for the availability of flood insurance during the shutdown. “The association has emphasized in its public statements that suspending the sale and renewal of NFIP policies could complicate and potentially delay loan closings for borrowers seeking mortgages where NFIP coverage is required.”
Last week, the IRS announced it would process requests made through the Income Verification Express Services (IVES) program. The service provides tax transcripts for mortgage applicants.
“While the IRS remains closed during the partial government shutdown, the agency recognizes the immediate hardship incurred if information is not available through the Income Verification Express Service (IVES) program…” said the IRS in a statement.
“Federal law limits what the IRS can do on behalf of taxpayers during a funding lapse; however, some programs funded by user fees present an opportunity for the IRS to help taxpayers receive critical services.”
The agency warned that it will take time to bring the service up to normal operating status and that it likely won’t meet the standard 72-hour turnaround time. There is a backlog of requests since the shutdown began.
While the Department of Housing and Urban Development is closed during the shutdown, the agency put together a contingency plan in the event of shutdown.
According to that plan, the Office of Single Family Housing will endorse new loans, with the exception of Home Equity Conversion Mortgages (HECM) and Title I loans. However, endorsements that require assessment by an FHA underwriter will not be able to be finalized during a lapse in appropriations.
HUD also sent a mortgagee letter in which it stated that "FHA expects mortgagees to assist borrowers experiencing a loss of income to the greatest extent possible…” That assistance includes extending special forbearance plans to borrowers impacted by the shutdown, and
fully evaluating borrowers for available loss mitigation options to avoid foreclosure.
The Department of Veteran Affairs is fully funded for fiscal year 2019 and is unaffected by the shutdown. That means VA loans can still be processed, however that may be delays.
According to the ABA, the Department of Agriculture will not issue new loans or guarantees through its Rural Housing Financing program. Scheduled closings of single housing direct loans are being cancelled.
Freddie Mac and Fannie Mae have released guidance on selling and servicing policies impacted by the federal government shutdown.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
