Mortgages and the Government Shutdown
It’s a perfectly reasonable question: With all the government involvement in mortgage origination, how would a shutdown impact a homebuyer’s ability to get a loan? It’s not the first time that we have had such a shutdown, and the show must go on as much as possible, but there are a few situations where your loan process may be affected if congress can not pass appropriations bills in a timely fashion. There have been 14 such shutdowns since 1980, and the last one starting in December 2018 was the longest, at 34 days.
Who May Be Affected:
Government employees: Fannie Mae has issued guidance on how they plan to continue purchasing loans during a shutdown, which is significantly more generous than the prior policies. Many lenders will maintain more stringent overlays and may not close loans for furloughed employees. This is an area where using a broker may be to your advantage: we can call several lenders and make sure to place your loan with one that will continue to fund even if your employer is impacted.
Self Employed Borrowers: for loans that require IRS tax transcripts, a shutdown in which the IRS deems that to be a non-essential service could impact availability. The IRS contingency plan covers full operations for 5 business days but is open ended after that time. Tip: you can download these yourself now, to avoid future delay.
Borrowers receiving social security: The social security administration has determined benefit verifications to be a non-essential activity that would be discontinued in a shutdown. If you are using social security income to qualify, ensure you have your award letter.
FHA/VA loans: These should continue to function normally for most borrowers, but loans that require interaction with the agency offices such as those with underwriting ambiguity or joint VA loans may be delayed.
Flood Insurance: The National Flood Insurance Program is currently suspended- borrowers unable to obtain private flood insurance due to the parameters of their application or their loan type may be unable to close.
USDA mortgages: These go to USDA underwriters for final approval, and that role is considered non essential. Individual lenders may or may not agree to close loans and hold them until USDA operations resume for final approval and delivery.
Moral of the Story:
Most borrowers will be unaffected by the government shutdown. If your loan requires a government agency verification for either underwriting or fraud screening purposes, you may expect to face some delays which can be mitigated by choosing your lender carefully to ensure they have plans in place to fund your loan if such a verification becomes unavailable.
