What Could Happen to Reverse Mortgages During a Government Shutdown

Editor’s Note: With the federal government shut down as of early Saturday morning, RMD is reprinting this article from April, when a similar action was averted. 

Move over, death and taxes: It’s probably time to add “threat of a government shutdown” to Benjamin Franklin’s list of absolute certainties in life.

Long considered a last-ditch nuclear option, the threat of government shutdown has loomed large in this era of intense partisanship, with both Democrats and Republicans using the specter of lost services — and missed government-employee paychecks — to advance their causes.

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And the threat of a shutdown could have an impact on how reverse mortgage brokers and originators do business.

That’s because unlike pretty much all other Federal Housing Administration loan activity, Home Equity Conversion Mortgage endorsements would come to a complete halt if the government were to shut down. According to an FHA resource compiled during the last federal government stoppage back in 2013, the FHA can continue to endorse single-family loans, with the caveat that the process may take longer with substantially reduced staffing levels.

But the HECM program falls by the wayside due to legal restrictions.

“FHA does not have the authority to insure additional HECMs during this period due to the statutory cap limiting the number of HECMs under the HECM program,” a separate Department of Housing and Urban Development piece from the last shutdown noted.

As RMD reported at the time, the 16-day cessation of non-essential government services led to a backlog in reverse mortgage endorsements that officials said would take up to two months to resolve.

Just because “forward” FHA lending would continue under a shutdown, experts caution that there could still be headaches in store for borrowers. While a federal government work halt wouldn’t affect such vital services as the U.S. Postal Service and the Transportation Security Agency, countless federal employees who help the wheels of government turn would be barred reporting to work and even accessing their departments’ computer networks from home, CNBC points out. This could mean trouble for loan applicants if, for instance, Social Security Administration employees aren’t available to verify Social Security numbers for identification purposes.

“That’s often required if something in an application doesn’t match the information associated with a Social Security number in a credit report or other database, even if it’s just a typo,” the CNBC report notes. “If the lender tries to verify the number with the Social Security Administration, and no one at the agency answers the phone, that borrower could be out of luck.”

About 17% of home closings were delayed during the previous shutdown, according to the CNBC report, with scattered reports of deals that were called off entirely due to the roadblocks.

Written by Alex Spanko

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    • John,

      It would be better if legislation removed the cap on HECM endorsements. In that case some HECMs would complete the endorsement process despite a shutdown.

      This would give HUD the opportunity to create a triage method to processing before the shutdown started and the ability to continue it throughout the shutdown process.

      This may not be a cure but it would be a definite improvement to having no processing being done during a government shutdown.

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