How the Government Shutdown Is Affecting Lending

On December 22, 2018 the U.S. entered the second federal government shutdown of 2018. The public did not know at the time that this shutdown would last for over 30 days (and counting), declaring it the longest government shut down in U.S. history. Over 800,000 federal employees have either been furloughed working without pay or forced to take a leave of absence.  As an increasing number of issues arise, the trickle-down affects are becoming more apparent to many organizations, companies, and U.S. Citizens as the political battle continues.

Meanwhile, the approaching tax season is in full swing, and government employees that are not working are wondering when they can expect to go back to work. Those that are working without pay also know that they cannot work for no pay very long.  Eventually they will need to go back to work or find employment elsewhere.

In order to gain a better understanding of the direct and indirect affects that the government shutdown has on the ability to purchase or refinance real estate, we reached out to the brain-trust of the Collateral Risk Network and asked the question. This is what they said:

The greatest impact on processing mortgage loans has been IRS tax return verification (4506-T) requests and the USDA shutdown. The IRS has now started processing the tax return verifications but processing time due to the backlog is the big question.

There will also be impacts from inability to verify employment status of federal government employees. The economic uncertainty created by the shutdown has also result in a reduction in loan volume but is difficult to quantify. A summary of agency impacts is as follows:

  • Fannie Mae and Freddie Mac are continuing normal operations without interruptions. But as stated above tax return verifications are delaying lenders’ ability to originate and is reducing the volume of mortgages delivered to the two government-sponsored enterprises.
  • The Federal Housing Administration is continuing to endorse single-family loans with the exception of reverse mortgages and Title 1 loans, according to the Department of Housing and Urban Development. But staffing limitations could extend processing times. The FHA also will continue lender insurance approvals unless it runs out of commitment authority. FHA is not making new commitments in the Multi-family Program during the shutdown but is maintaining operational activities including paying claims and collecting premiums. FHA Contractors managing the REO/HUD Homes portfolio are continuing to operate. However, they are facing some processing delays due to short staffing.
  • The Department of Veterans Affairs has determined that housing is an “essential service” for military veterans and will not be affected by the shutdown.
  • The U.S Department of Agriculture Rural Housing Service has been impacted by the shutdown and single-family loan processing has come to a halt.
  • Ginnie Mae is continuing to operate normally. Their contractors are paid from Ginnie Mae reserves under a permanent indefinite appropriation, so there is no break in contractor services on essential functions, according to HUD.
  • Federal Emergency Management Agency (FEMA) announced on December 28th that it will resume the sale of new insurance policies and the renewal of expiring policies. This rescinds initial guidance issued on December 26, 2018, to industry partners to suspend sales operations as a result of the current lapse in annual appropriations. All NFIP insurers have been directed to resume normal operations immediately and advised that the program will be considered operational since December 21, 2018 without interruption. On Friday, December 21, 2018, Congress reauthorized the National Flood Insurance Program (NFIP) until May 31, 2019.
  • Small Business Administration (SBA) is closed during the shutdown and all lending is halted. Although primarily small business commercial lending, A note on the website indicates that the website is not being maintained during the shutdown. 

According to a NAR survey of 2,211 members, 75 percent had no impact to their contract signings or closings. However, 11 percent did report an impact on current clients and 11 percent on potential clients. The most common impact, at 25 percent, was the buyer deciding not to buy due to general economic uncertainty, though they were not a federal government employee. Among those impacted by the shutdown, 17 percent had a closing delay because of a USDA loan.

There seems to be no light at the end of the tunnel as the Government appears to steer further away from an agreement. The political battle between the Republicans that stand firm behind President Trump, and the Democrats that are refusing to negotiate any terms until the Government is back up and running are both playing hard-ball. It is impossible to predict how the affected parties will continue to operate or what the future has in store for the everyday American citizen.

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