Update regarding the government shut down and real estate

Now that the "shutdown" is here, we are starting to see how things are playing out with real estate transactions and government agencies.  This information comes to me courtesy of the National Association of Realtors, who, as you might imagine, is monitoring this all rather closely.

"The IRS is closed and has suspended the processing of all forms, including requests for tax return transcripts."    In my experience, many lenders do not necessarily  require this, but tax return transcripts can be an easy way of documenting financial status.    It sounds as though some lenders are looking at temporarily revising some underwriting policies, and some may be looking at simply delaying the requirement for the forms, even until after closing.  I'm not quite sure how that would play out.

The Social Security Administration is also closed and isn't tending to most customer requests.  " According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service will also be suspended during the shutdown."  Similar to the IRS issue, this will pose a problem for loan processors.  Some lenders may be instituting policies to provide for Social Security Number verification after closing.

Indications are that FHA will continue to process and endorse new single family loans, but that multifamily (think duplexes and such) will not receive new commitments.  Delays in FHA loans, even single family loans are likely.

VA loans and the National Flood Insurance program shouldn't be effected by the shut down.

USDA loans in process, that have already received loan commitment, will not be affected.  No new loan commitments will be issued.  In general, USDA loan commitments are good for something like 90 days.

Programs intended at stabilizing existing homeowners through the Making Home Affordable program (HAFA and HAMP) will not be affected.

The above information was released by the National Association of Realtors on October 3rd.  I expect to see similar updates if the shutdown drags on much longer.  If you are in the middle of a purchase and have specific questions, I'd suggest talking with your mortgage broker.

Anecdotally, I have three clients with purchases in escrow right now. One, a cash offer, will feel no affect.  The two others are not FHA or VA loans, and have already been through the documentation and underwriting process, so we're optimistic they'll close on time.

A government shutdown and your real estate transaction

They say the economy of the United States lives and dies with housing.  So one might wonder how a government shutdown would effect the real estate industry.

Loan programs guaranteed, or administered by a branch of the federal government will clearly be hit the hardest.

 FHA loans, which have been lauded as the backbone of the housing recovery, won't be made during a shut down.  Use of these loans has been easing as the economy improves, and some of the more generous portions of the program have been trimmed back.  FHA loans still make up a significant portion of first time buyer loans.

Similarly,  Federal VA loans and USDA loan programs will grind to a halt.  As you might imagine, Federal VA loans are a GI benefit, and help provide housing for veterans.  USDA loans encourage home ownership in rural and small town communities. 

Even non-"government" loans will be affected.  There are several interactions loan processors have with the federal government merely to underwrite loans and complete home purchases;  tax return transcripts and social security number verification, to name a few.  These steps must be completed for many home loans to be funded.

Loans underwritten by Fannie Mae and Freddie Mac  may be able to fund, as long as they don't  need any information from the Internal Revenue Service or the Social Security Administration.

If you are in the middle of a home purchase or refinance, check with your lender to see how a government shut down might affect your transaction.

Certainly, a government shut down will have a broad reach into many parts or our lives, and well beyond real estate. This blog is a mere glimpse...