If you're considering buying or refinancing a home and you need a VA, USDA or FHA mortgage, the government shutdown might seem like a detour on your path to home financing. Headlines are touting that borrowers won't be able to get government loans during the shutdown, sending the housing recovery into a downward spiral. Even reputable outlets have missed the mark on explaining the shutdown's impact on housing because of the complexities involved. Here's a quick overview:
Most HUD and VA Functions Are Automated
HUD says that during the shutdown, only 3.8 percent of its 9,500+ employees will continue to work. This has led many to conclude that FHA won't be able to underwrite loans, or at least, not be able to meet the demand. Although this is likely true, most FHA mortgages are not underwritten by HUD anyway. A majority of FHA mortgages (and VA mortgages, too) are underwritten by private mortgage lenders. Only lenders that have not been granted what's called delegated authority won't be able to process and fund FHA or VA loans.
If you're interested in applying for an FHA mortgage, make sure the lender you work with has delegated authority. If the shutdown continues for any length of time, a lender without delegated authority might not be able to close your mortgage.
In addition, HUD's 2013 Shutdown FAQs, which were just released, say that FHA will be able to endorse single family loans during the shutdown with a limited number of FHA staff available to underwrite and approve new loans.
When applying, be sure to ask different lenders about closing as some may choose to wait until FHA can endorse the loan while others may close and then deal with the FHA endorsement later. That's what you want if you're the borrower. HUD expects the endorsement phase to take a little longer than expected but also states that the decision to close is decided by each individual lender.
VA: Business as Usual (Almost)
What about VA home loans? According to the VA's Veteran's Field Guide to Government Shutdown, "Services NOT impacted by potential lapse in appropriations" include "home loan processing." It appears that a VA mortgage application will be processed as long as your lender is VA-approved. What about getting your Certificate of Eligibility (COE)? That process is pretty much automated. You can request it online or your lender can obtain it through its Web LGY system.
Those who fall through the cracks and can't be helped by automated systems may experience more difficulty -- not everyone is in the system and able to pull their COE electronically.
USDA Home Loans?
According to the Housing Assistance Council (www.ruralhome.org), the USDA has not issued guidelines for shutting down. However, a quick visit to their site gets you this message:
Due to the lapse in federal government funding, this website is not available. After funding has been restored, please allow some time for this website to become available again.
A look at their contingency plan for a lack of appropriation gets you this:
RD (Rural Development) has no program activities that would continue in the absence of an appropriation.
It's probably safe to say that few, if any, USDA mortgages will be processed during the shutdown.
GSEs and the IRS
Not being government entities (although under government control), Freddie Mac and Fannie Mae will continue to operate as usual. However, the IRS will not be available to provide confirmation of borrower income. In response, lenders are requesting additional documentation from applicants. One national lender, for example, sent this instruction to its personnel:
In lieu of obtaining tax transcripts we will be asking for the most recent filed full tax returns for all borrowers regardless of income source - this will allow us to ascertain if any 2106 expenses have been filed or if the borrower has any other Schedule C, E or F income not previously reported.
Better than Expected
In short, the shutdown will likely affect some borrowers, but will have a minimal impact on housing in the short-term. The key for borrowers will be to ask your lender questions about necessary documentation and anticipated closing timeframes. If Congress can't reach a workable agreement soon, you can also expect processing to take longer as employees will have a backlog to deal with.
The longest government shutdown lasted 21 days. Let's hope U.S. lawmakers don't try to beat this record, at least for the sake of housing.