In the past few days, we have received a large number of questions regarding how the current government shutdown impacts the real estate market. Because the FHA and U.S. Department of Veterans Affairs are responsible for issuing one in four of all new mortgages, the government shutdown has a definite, and potentially significant, impact on the housing market and housing recovery.
The good news is that Fannie Mae and Freddie Mac, who back a large portion of all mortgages, are not affected by the shutdown. In addition, the Making Home Affordable programs, such as HAMP and HAFA are not affected by the shutdown, as the programs are funded through the Emergency Economic Stabilization Act, which requires the funding to continue. That is the end of the good news.
For multiple reasons, the process of obtaining a mortgage during the government shutdown will be delayed, if not stalled completely. For instance, lenders cannot verify social security numbers through the Social Security Administration, because it is closed. Probably most significantly, the IRS is closed, which means that lenders cannot obtain the necessary Form 4506-T, which they use to verify the income of potential borrowers.
In addition, the FHA remains mostly operational, but only with a tenth of its normal staff. This means that less than 70 of the FHA’s nearly 3,000 employees are working during the shutdown. As such, significant delays of any FHA loan should be expected. The FHA will continue to endorse new loans, but it will not make any loan commitments in the Multi-family Mortgage Loan Program during the shutdown. The VA loan guaranty program will continue to process and guaranty mortgages, but with a similarly reduced staff. Further, the U.S. Department of Agriculture, which offers low-down payment mortgages to rural borrowers, will be completely closed during the shutdown, effectively placing all USDA mortgage loans on hold.
Most analysts agree that a short term government shutdown should not impact the housing market tremendously; however, a long term shutdown lasting more than two weeks would likely create a significant impact in the market, as it will be nearly impossible for lenders to process, approve or fund mortgage loans.
As always, should you have any questions in regards to the foregoing, please consult with your local real estate attorney.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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