This Is How The Government Shutdown Is Impacting Your Home Loan
Government Shutdown 2018-2019
Thanks to Congress and the other powers-that-be, December 2018’s budget resolution could not be resolved, which means that the government’s spending authority expired at midnight on December 21, 2018. As a home buyer, the government shut down may have you worried, and rightfully so. The government shutdown is impacting home loans in a few key ways.
The National Association of Realtors® has the following to say regarding the government shutdown:
An extension of the National Flood Insurance Program (NFIP) is currently attached to the CR. Without an extension, NFIP cannot sell flood insurance policies after midnight on December 21. Existing policies will not be affected until 30 days after their renewal date. Homebuyers will be able to assume existing policies and claims will continue to be processed and paid as usual. For more information, click here to read NAR’s answers to frequently asked questions about NFIP.
Federal Housing Administration
HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program except for HECM loans. It would not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. FHA Contractors managing the REO/HUD Homes portfolio can continue to operate. Some delays with FHA processing may occur due to short staffing (click here for more info).
Internal Revenue Service
The IRS will close and suspend the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. Some loan originators may adopt revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac may adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.
Government Sponsored Enterprises
During previous shutdowns, Fannie Mae and Freddie Mac have continued normal operations, similar to their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. Fannie and Freddie may announce relaxed procedures that would permit closings to go forward without federal verification of Social Security numbers and IRS tax transcripts. However, lenders would still have to obtain federal verification of both before the GSE’s will accept loans for purchase. Any relaxed requirements would not apply to loan modification re-financings.
Rural Housing Programs
The U.S. Department of Agriculture would not issue new rural housing Direct Loans or Guaranteed Loans. Scheduled closings of Direct Loans will not occur. Scheduled closings of Guaranteed Loans without the guarantee previously issued would be closed at the lender’s own risk.
Social Security Administration
The Social Security Administration will close, but checks will still be processed and distributed. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service would be suspended. Fannie Mae and Freddie Mac are expected to adopt policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.
Allen Tate Mortgage’s team noted that the four types of government funded loans are impacted in the following ways:
USDA (Rural Housing Loans) – USDA will not issue any new rural housing Direct Loans or Guaranteed Loans. Scheduled closings of Direct Loans will not occur. All Guaranteed USDA loans must receive a commitment by USDA prior to closing. Lenders will be unable to close Guaranteed USDA loans during the shutdown, unless the lender has already received the commitment from USDA.
FHA Loans – FHA’s automated system is continuing to allow lenders to order case numbers, which are required for appraisals. In addition, FHA has a small team working to answer questions but there may be some delays due to short staffing.
VA Loans – VA loans are not impacted at this time. Veterans are encouraged to apply for their loan with an approved lender of their choosing.
Conventional Loans (Fannie Mae and Freddie Mac) – We have been advised that loans sold to Fannie Mae and Freddie Mac, which make up the majority of the current mortgage market, are not affected directly.
Aside from home loans, there are 38 government departments affected. Unfortunately one of the most necessary government agencies is severly understaffed; the IRS is involved in verifying information needed for many home loans is severly understaffed. The IRS is said to have 1 out of 8 workers on staff during the government shutdown.