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Government shutdown causes few mortgage delays

The partial government shutdown has now stretched into its third week, and the pain is already been felt on the fringes of the mortgage industry. Although major loan programs have been able to continue during the closures, analysts expect delays and an increasing array of problems at loan closings if the shutdown drags on much longer.

The greatest single impact has been to the U.S. Department of Agriculture (USDA) loan program, which is available to typically lower and mid-income borrowers in rural areas. Originators said they won’t be able to move forward with new USDA applications while rural service offices are closed.

governshutdown“The USDA is shut down, so you can’t send them anything,” said Ricky Peacock, president of Florida-based Home Solution Lenders, on Wednesday. Peacock said he was able to close on a couple of USDA loans at the end of last year, but now he is in a waiting game.

“Everything we closed for the year [2018], we already had prior USDA approval and had all our transcripts [for]. Now that we are rolling into January, anything that was started in December is going to be affected.”

 The Federal Housing Administration has also suspended its reverse mortgage program, which accounts for a small fraction of its business. Typically, the U.S. Department of Veterans Affairs (VA) loan program, as well as government-sponsored enterprises Fannie Mae and Freddie Mac, are not directly impacted by government shutdowns.

As of Friday, there was no clear end in sight to the budget impasse, which began on Dec. 22. Senate Minority Leader Chuck Schumer, D-New York, and House Speaker Nancy Pelosi, D-California, met with President Donald Trump on Friday. The Democrats called the meeting "contentious." Trump said the meeting was productive, but indicated that he was prepared to allow the shutdown to continue for months to ensure full funding of a southern border wall. Congressional leaders were expected to meet over the weekend. Lawmakers are not expected to reconvene until Tuesday, guaranteeing that many federal offices will be closed early next week.  

Peacock said investors have been sending out warning notices to FHA lenders that they’ll have to buy back loans if they can’t obtain an FHA guarantee within 60 days. He also noted that government agencies have stopped updating their webpages, making it hard to obtain information.

“We like to reference the FHA guidelines if we have a question on something,” Peacock said. “FHA’s website is shut down.”

Another issue is obtaining tax transcripts from the Internal Revenue Service. The so-called 4506 form is often needed to close on Fannie Mae and Freddie Mac loans, said Joe Parsons, a senior loan adviser with Pinnacle Capital Mortgage, based in California.

“As far as I know, [the forms] are not being processed,” Parsons said. “If it is an absolute requirement for funding a loan to get a 4506, that could obviously slow up a deal."

The Mortgage Bankers Association said the issue with obtaining tax forms could cause problems the longer the shutdown continues. 

"Although it is difficult to quantify all of the impacts of a government shutdown, lenders processing FHA loans or loans that need tax transcripts should anticipate delays and reduced functionality from HUD and the IRS," the trade group wrote. "A shutdown lasting a few days would slightly inconvenience lenders in processing loans; however, a longer delay would clearly have more serious impacts." 


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