The Government Shutdown & the Impact on Mortgages

The government shutdown, currently the longest in history at day 32, has garnered much press and has created disruption in different industries. The residential real estate & mortgage industry, however, has steered clear of any significant interruption.  Though there may be minor complications in the processing of certain mortgages (i.e. those that are backed by the government), the bottom line is that the real estate & mortgage industry has incurred very few setbacks due to the shutdown.

Initially, the partial shutdown impacted the processing of 4506-T Tax transcripts which would have prevented many mortgages from closing. This form enables mortgage underwriters to obtain tax returns to verify borrower’s income. This is a requirement for the approval of most mortgage loans.  When our Mortgage Bankers Association addressed the magnitude of this issue with government officials in December, the verification process resumed, and the problem was averted.  Additionally, Fannie and Freddie have recently implemented more flexible policies regarding income verification and pay stub age requirements to accommodate those impacted by the shutdown.

Issues that continue are those specific to loan products backed by the Federal Government.  The majority of loans are conventional loans and they are not directly affected; however, FHA Loans are backed by the government, and despite the fact these loans are closing, the process may experience some delays. VA loans have not been impacted. USDA loans are the one product that will not be closed during the shutdown.

Though not exclusive to the mortgage industry, there has been a broader impact on financial markets as a result of the uncertainty, which has driven interest rates down. If the issue is not resolved, and the shutdown is prolonged, it will have a negative impact on the positive momentum in the housing market.

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