The shutdown of the federal government which began last week will not halt government lending, as many had believed as recently as last week. The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs have announced that they will still process loans, albeit with a skeleton staff.
But the verification of certain government documents necessary to complete loan files, including the verification of tax returns by the IRS, will be stopped during the shutdown, potentially derailing closings. In addition, the U.S. Department of Agriculture, which offers loans in rural areas, will suspend lending operations.
During the shutdown, the federal government will be able to perform functions that are required to prevent an imminent threat to the safety of human life or the protection of property. They will also be able to continue to fund projects which are funded through “multi-year appropriations,” for which there will still be funds.
For the FHA, which backs approximately 15 percent of U.S. mortgages:
- Multifamily projects with firm commitments will be able to close.
- Lenders which service certain construction loans may be able to let builders draw funds, but new construction loans cannot be issued.
- Single-family home loans, including those made through FHA-staffed Homeownership Centers, will be endorsed.
- The FHA Call Center and the National Servicing Center’s call center will be staffed.
- FHA loans will be serviced
- Repairs necessary to prep REO properties for sale and payment of contractors will continue.
- Rental assistance payments, including Section 8, will still be made, and emergency repairs for HUD/FHA-owned properties will be approved.
- Sales of defaulted notes will continue.
Ginnie Mae will also continue to perform its secondary market functions.
However, through critical FHA functions will continue to operate, HUD has furloughed the vast majority of its staff. Of the agency’s 8,709 employees, only 349 will remain on duty full-time during the shutdown, including a mere 68 out of the 2,972 employees of the Office of Housing, which includes the FHA.
‘A Grinding Halt’
“If you need FHA for anything, they’ll technically maybe be able to do it, but it’s pretty much going to come to, not a screeching, but a grinding halt. An FHA condo approval, something where you actually need them to make a timely decision, you have very little hope,” said Brian Koss, managing partner at Danvers-based Mortgage Network, Inc.
A less-talked about impact of the shutdown on housing is the impact on the Internal Revenue Service (IRS) and the Social Security Administration (SSA). The IRS has announced they will not process any forms, including the issuing of tax return transcripts (Form 4506 T). The Social Security Administration will retain a skeleton staff, but may prioritize new claims, resulting in difficulties in verifying Social Security numbers.
Some lenders and brokers have been able to race to get these documents certified for loans they currently have in the pipeline before the shutdown.
“I can tell you that Fairway will not delay any closing for tax transcripts at this time,” said Amy Tierce, regional vice president for Fairway Independent Mortgage in Needham.
But new mortgage applications may face delays without these crucial documents. So far, secondary market participants, including Fannie and Freddie, have been unwilling to alter or suspend overlay requirements which require these documents in order for a loan to be sold onto their books.
“If you go ahead and close without [certified tax returns], you’re taking an enormous risk. Those loans may prove unsalable, and the lenders aren’t letting us off the hook, including Fannie and Freddie,” said Koss.
Email: csullivan@thewarrengroup.com
