The effects of the government shutdown will ripple through neighborhoods across America— an impact to not having a fully functioning government is that an already stressed mortgage market may become even more prohibitive. This does not aid the housing market recovery…
This will likely result in a freeze of the pipeline of processing new home loans. Due to the October 1st furlough, employees at federal mortgage companies like Fannie Mae and Freddie Mac will not be available to verify Social Security numbers or ensure loans proceed to closing.
After getting burned in the housing crash, many lenders now check everything on a borrower’s loan application. It is standard to verify tax returns as a quality control measure.. If the IRS is closed, it will not process any forms, including tax return transcripts, so the loan applications will be stalled. Government workers will likely be unable to verify their employment on a mortgage application.
At the Federal Housing Administration, which represents about 15 percent of the mortgage market, the staff will be significantly reduced. Lenders with “delegated authority” will be able to go on making FHA loans (about 80 percent of FHA lenders). They will also be able to get FHA case numbers through the usual on-line service. The FHA will continue to collect insurance premiums from borrowers during a shutdown as well.
If the shutdown lasts for a week or less, the immediate effects on mortgage availability will likely be minimal. A longer furlough period, however, will undoubtedly effect mortgage processing time and would-be homeowners.