What happens to real estate when the government is shut down? Fannie Mae released temporary guidelines for loan processors to assist federal workers and contractors during the government shutdown.
Homebuyers, lenders and real estate agents might experience closing delays as the U.S. partial government shutdown continues. And, there’s nothing that increases personal and financial stress levels than a delay in your house closing.
“The housing industry was already facing market challenges before any government closure,” Lawrence Yun, Chief Economist with the National Association of Realtors said in a press release sent with the 2019 Government Shutdown Report. “The shutdown is causing tangible harm to potential buyers, the real estate market and economic growth.”
Realtors say shutdown affecting buyers
A survey of more than 2,200 Realtors found that 11 percent have current clients who are impacted by the shutdown, and 11 percent have potential clients who have been impacted by the shutdown. The most common impact reported is simply putting off the decision to buy a home, the report notes.
It turns out that many housing agencies and companies are treating the government shutdown like a natural disaster, allowing for late payments and requesting that lenders provide special forbearance options to borrowers.
USDA Loans Most Affected by Shutdown
U.S. Department of Agriculture (USDA) Direct Loans or Guaranteed loans are most affected by the government shutdown. The USDA will not issue new Direct or Guaranteed loans, scheduled closings of Direct Loans are canceled and Guaranteed Loans may or may not be closed. Those who are getting a USDA loan or were planning to use the program should check with their lender to see if they’ve been affected.
Freddie Mac issued a statement saying that the “federal government shutdown will not impact operations” and released their own temporary guidelines to help sellers and loan servicers deal with complications from the government shutdown.
Fannie Mae released temporary guidelines for lenders to workaround issues that might arise when processing loans for federal workers or contractors during the shutdown. Lenders will be unable to obtain a verbal verification of employment (VOE) for federal workers or contractors during the shutdown, but, for example, under Fannie Mae’s temporary guidelines, lenders are permitted to obtain a verbal VOE after loan closing.
FHA Has Reduced Staff Working During Shutdown
Federal Housing Administration (FHA) loans have not previously been impacted by government shutdowns, however, reduced staff working at the FHA may cause a backlog and some borrowers may experience closing delays. U.S. Department of Veterans Affairs (VA) loans are likely to be unaffected by a staff reduction because VA staff are paid through borrowing fees.
The FHA released a letter to approved mortgagees and lenders reminding them of their obligation to offer special forbearance to borrowers experiencing loss of income. The FHA encouraged waiving late fees and suspending credit reporting on borrowers nationwide who have been affected by the shutdown.
Social Security number verification requests will not be processed by the Social Security Administration (SSA) during the shutdown, but, much like verbal verification of employment, Fannie Mae temporarily revised this policy to enable lenders to obtain verification prior to delivery of the loan.
IRS Workers Recalled
While the IRS was unable to process IRS Request for Transcript of Tax Return (form 4506-T) during the first three weeks of the shutdown, lobbying by the mortgage industry has proven effective, and over the weekend 40 IRS workers were recalled in order to process this paperwork, which is typically required at or before closing. (This paragraph was updated January 14, 2019 to reflects events of the weekend.)
Buying a home is already the most stressful event of modern life, and dealing with closing delays or loan processing hiccups caused by a partial government shutdown certainly doesn’t make it easier. If you think your mortgage loan or closing date might be affected, talk to your real estate agent and your lender to discuss what options are available to you. With any luck, the shutdown (now in Day 18 as we write this), will end soon.
Updated January 14, 2019. Over the weekend, the government announced it would restart workers at the IRS in order to process mortgage loan verifications. Some 40 workers, mostly based in California, are to report to work this week. But for all other Federal workers, the shutdown continues.