As of the day of this writing, we are in day 7 of the government shutdown and neither side seems to be close to a compromise. How is this currently impacting the housing market?
The greatest item that I see potentially impacting the mortgage market is related to the IRS Form 4506-T. This is a required verification of the tax return numbers against the IRS database and is a fraud prevention requirement to make sure the tax return numbers are accurate vs. what the IRS has on file.
Currently this function is not being supported by the IRS due to the shutdown and there has been a great deal of speculation that this would delay or prevent loans from closing until this function is up and running again.
However, we have received word from two of our investors that we are being allowed to continue underwriting and closing our loans, and we can provide the 4506-T verification once the IRS is processing them again, and sell the loans to the investor at that time.
Basically, this means we are still doing business as usual! However, our processors and underwriters will be carefully reviewing the tax returns, and if a potential error is discovered, it could trigger the need for the 4506-T to be completed prior to loan closing.
FHA and VA loans are very automated for the most part and our underwriters are approved to underwrite and approve these loans without the direct involvement of the agencies. We do not need FHA and VA to sign off on the loans we approve, so we are able to continue processing and closing most loans like normal. (FHA is not currently originating Reverse Mortgage HECM loans right now.)
We can get FHA case numbers without the involvement of FHA personnel in most cases.
We can obtain VA Certificates of Eligibility online without the involvement of VA personnel in most cases.
In the few cases that might require the involvement of FHA or VA personnel, they are still working with skeleton crews and taking care of business as they are able. Closings might be delayed for this reason but we would learn of this delay during loan processing and communicate it to the buyer, seller and agents involved. Most loans can still be processed and closed without delay.
USDA Rural Housing loans are not being closed right now. A visit to USDA’s website offers the following message: “Due to the lapse in federal government funding, this website is not available. After funding has been restored, please allow some time for this website to become available again.”
Prior to the shutdown, Florida USDA Rural Housing was advising us of a 30-45 day backlog meaning that loans could easily take 60+ days from application to closing. When they start working again, look for this loan type to take even longer to close.
Fannie Mae and Freddie Mac are both open for business and we are processing, underwriting and closing conventional loans like usual.
Again, the largest potential risk of not being able to close mortgage loans was the inability to verify tax returns vs. the IRS database and our investors are allowing us to continue closing loans now, and verifying later prior to selling the loan to them.
One final impact of the shutdown is that interest rates are still very low. The Federal Reserve’s decision not to taper its QE3 Bond Purchasing last month helped to lower rates and the shutdown has also had the effect of lowering rates while investors flock to the safety of bonds.
In summary, government backed loans like FHA and VA continue to be approved and closed as usual. Certain specialty loans including USDA Rural Housing Loans and FHA HECM Reverse Mortgage Loans are not being closed right now, but we can take applications and process files to be ready for approval and closing when the government re-opens.
We are doing business as usual and are still taking applications this week for loans to be targeted for closing in October.
Sr. Mortgage Loan Officer
Bank of England
5410 E. Hwy 30-A, Suite 212
Santa Rosa Beach, FL 32413
706-888-0980 (Cell / Text)
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