Lenders: Government Shutdown Is Taking its Toll on Mortgages

The Department of Housing and Urban Development assured lenders prior to the government shut down that took effect October 1 that it would maintain its single family operations despite cutting back on staff and services in other areas. 

But the shutdown could have an adverse impact on the mortgage market, mortgage industry participants are saying with the National Association of Mortgage Bankers now anticipating a slowdown across the lending system including processing delays relating to required loan documentation such as verifications from the IRS or Social Security offices. 

“We were informed that the Federal Housing Administration (FHA) will continue processing of these reports. There is a chance the VA will remain functioning through the government shutdown,” said NAMB President Don Frommeyer. “Those loans that have already closed and are in the process of insuring may have problems. But all in all, most processing of mortgage loans will be unaffected by the shutdown.”

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The indirect impact of departments outside of FHA that have closed or restricted capacity could lead to some lenders having to halt operations, NAMB said. 

“Without access to tax transcripts and relevant information that must be verified by these agencies, it may not be possible to complete the loan verification process. Thus, the lenders working through the shutdown may come to a standstill while processing loans,” Frommeyer said. 

NAMB also pointed to speculation that interest rates may rise in response to the shutdown, which could also have a direct impact on the mortgage market. 

In a statement Thursday, Mortgage Bankers Association President and CEO David Stevens called for an end to the shutdown, citing similar delays and a growing impact on the housing market overall.

“The federal government shutdown will have a growing impact on the housing market the longer it continues,” Stevens said. “If this shutdown is temporary, the ones affected most will be out of work federal employees. However the longer it goes, the greater impact it will have on borrowers, the housing market and the national economy.”

While slower processing times for loans requiring tax transcripts and social security verification, or for applications that need to go through HUD, lenders and brokers are delayed, Stevens said, but the impact ultimately falls on the borrower. 

“Different loan programs have different requirements, and these disruptions impact lenders in different ways, leading to confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance,” he said. “…The furloughs can disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized.

“For these reasons there must be a resolution so that borrowers and lenders are able to return to business as usual.”

Written by Elizabeth Ecker

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  • This is quit the mess. The mortgage industry will feel the impact of the government shut down long after it re-opens.

    What has this country evolved into. Our government has gotten so large that it is not a government for the people anymore. The government controls us and it is getting worse.

    Everyone has their opinion. My opinion on Obamacare is that it is one of the worst bills ever passed in the history of our great nation, along with Dodd-Frank. Both bills need to be repealed.

    On the other hand a government shut down is not the answer and it will not get us any where but digging our hole deeper than it is.

    This will put a glitch in the housing recovery and the seniors that are being adversely effected over this, numbers in the thousands.

    We live in a time of no compromise and politicians that have only themselves and their parties as a priority. We the people suffer because of it.

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      There is much of what that you write which could be argued including calling an Act a bill following several years of passage and initial implementation.

      But it is your estimate of the numbers affected being in the thousands which this comment addresses. The number is probably in the low millions if the government shutdown ends tomorrow. People are impacted in everything from housing to the values of their retirement accounts.

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