03 October 2013

The Government Shutdown and Home Loans for Homebuyers

Story first appeared on RiverbankFinance.com.

Article By Anthony Bird CEO of Riverbank Finance in Grand Rapids Michigan:

Buying a home can have many challenges from critical underwriters to conservative appraisers however, on the long list of things that can go wrong with a home loan you would not expect a government shutdown to be a factor. As of 12:00 AM today on October 1st, 2013 the Federal government has now shut down due to a failure of Congress to pass a Continuing Resolution. With over 800,000 Federal employees being furloughed, this may mean home loan delays for home buyers.
Government Shutdown Causing Delays in Home Loan Approvals.  This could effect a Grand Rapids Mortgage Refinancing.

While the federal government may not be directly involved with the home loan process, there are several indirect factors that the Federal government has to help with to close a mortgage loan.  Large government bodies may all be suffering from furloughed employees and backups in processing approvals. These delays could affect all loan types including FHA Loans, USDA Loans, VA Loans, and even Conventional Loans.
Why will Home Loans be delayed during the Government Shutdown?

Regardless if your bank or mortgage company has stated that delays will not happen, this may not be the case. Delays in third party verifications may cause delays in real estate closings if income, identities or flood zones cannot be verified.

A common verification for any home loan approval is income verification through a 4506-T IRS tax transcript. A standard mortgage process for all mortgage companies and banks, is to obtain an IRS verification of income so that underwriters and quality control teams can verify that the income a mortgage loan applicant has provided is correct and accurate. The IRS has announced that they will be furloughing non-essential personnel including those whom process tax transcripts. If the income cannot be verified through the IRS, the loan will not close on time.

If a borrower cannot fully document their Social Security Number by providing documents such as a Social Security Card, a bank or mortgage company may process a SSA-89 Form for Social Security Number (SSN) Verification. This document is submitted through the Operations Field Officer at the Social Security Administration and processed as a verification of SSN. According to the Social Security Administration’s Shutdown Contingency plan issued on Sept 27th, this will be one of the many activities that will be discontinued.

Another example of possible mortgage delays due to the government shutdown is flood insurance coverage verified through FEMA.  FEMA is the government agency that sets the flood zones maps. If lenders cannot verify that homes are not in a flood zone then they may not allow a home loan to close.

List of Government Agencies Affected By the Government Shutdown:

    Housing and Urban Development (HUD)
    Federal Housing Administration (FHA which insures FHA Loans) (This may effect a Grand Rapids Mortgage.)
    Fannie Mae (FNMA a conventional mortgage buyer)
    Freddie Mac (FHLMC a conventional mortgage buyer)
    Veteran’s Administration (VA for VA Loans)
    Internal Revenue Service (IRS which verifies income on tax returns)
    United States Department of Agriculture (USDA for Rural Development Loans)
    Social Security Administration (SSA which verifies Social Security Numbers)
    Federal Emergency Management Agency (FEMA which helps with flood insurance)
    Department of Education (DOE verifies minimum student loan payments)

This list of government agencies that will be affected by the government shutdown, provides critical services to fund, verify, insure and close mortgage loans. A furlough of employees could mean long turn times and delays in real estate closings.

Will FHA Loans be delayed?

FHA Loans, a popular mortgage program for First Time Homebuyers, should not be significantly impacted as long as the government shutdown is brief. HUD has issued a memo to banks and lenders explaining that daily operations will be continued. The FHA will continue to endorse single family loans, however with furloughed employees the process may take longer. Only limited FHA staff will be available to responds to questions emails and loan scenarios which may also cause delays. FHA connection will still be open and available to request FHA case numbers and transfer requests. Overall, business should continue as usual for FHA loans providing that they do not run out of commitment authority during the shutdown period. Delays may be expected on third party verifications.

Will VA Loans be delayed?

The Department of Veterans Affairs (VA) has issued a statement explaining that business should continue as usual for VA Loans however 1/3 of the VA Benefits Employees will be furloughed.  The Veterans Benefits Administrations has 7,252 employees, of their 21,237, which will be furloughed during the shutdown.  Even with the limited staff, the VA encourages banks and lenders to continue to originate loans for homebuyers.  Veteran’s Certificates of Eligibility (COE) will still be available to request online through the webLGY. Manual COEs will still be processed and researched through the Atlanta Eligibility Center. Appraisals may still be ordered and processed through the Veterans Information Portal. Delays may be expected on third party verifications.

Will USDA Rural Development Loans be delayed?

USDA Rural Development Loans may be delayed throughout the Government Shutdown. There are no updates from the USDA at this time, however it is likely that they will not issue Conditional Commitments for home loans until a continuing resolution is passed by Congress. This may be a major setback to USDA mortgages as no updates are available.

The overwhelming and increasing popularity of USDA home loans has already created a backlog of 4-5 weeks for processing once a loan has been sent to the USDA for a conditional commitment in some areas such as Michigan in their Traverse City and Mason offices. USDA Home loan pre-approvals and originations will still continue with banks and mortgage lenders, however homebuyers and real estate agents should be cautioned about possible delays. Additional details about USDA Rural Housing delays may soon be available.
Will Conventional Loans be delayed?

Conventional loans are not directly handled through government agencies until after a loan’s funding by a banks or mortgage company. Once a home loan is funded by an institution, it may then be repackaged as a Mortgage Backed Security (MBS) and sold by Fannie Mae and Freddie Mac. Conventional Mortgage loans should not be directly delayed through the government shutdown however third party verifications may cause minor delays.
Will Homebuyers be affected during the Federal Government Shutdown?

Chances are that Congress will quickly pass a resolution to re-fund the Federal Government within three days, however if this does not happen, you may see delays in mortgage loan funding for any home loan type. During this time of uncertainty, it is a wise plan to expect delays and plan accordingly. The details of individual delays may not be immediately available until an issue occurs. Homebuyers and sellers should be vigilant in requesting updates from their loan officers and real estate agents as well as work closely with them to ensure a quick and smooth real estate closing. Unforeseen issues may arise such as IRS transcript verification delays, government insuring delays or even flood insurance delays.

What can I do to ensure my home loan closes quickly?

While many of the factors that could delay your home loan are simply out of your control, there are step you may take to ensure your loan is moving forward as quickly as possible. It is recommended that you keep a great line of communication with your loan officer and real estate agent during the government shutdown.  If any documents or requirements are needed for loan approval, be sure to provide the documentation as soon as possible so further delays are not created by you.

The best advice for a homebuyer buying a home during the government shutdown is simply to be patient. Delays in a home purchase would undoubtedly be frustrating, however, there is little a homebuyer or seller can do if the delays are due to the government shutdown. Contingency plans are now in place by all government agencies to reduce delays. Remember, you are not alone in waiting as there are over 60,000 government home loans closed monthly.

The first reaction is to look for whom is to blame and react by pushing them to help move your loan towards closing. It is not your real estate agent nor your loan officer’s fault for the government shutdown, so do not shoot the messenger.  We can all agree that Congress has some major issues on their hands, so let’s all hope they do their jobs quickly and get the Federal Government back in business.

Frequently Asked Questions about the Government Shutdown

How long will a government shutdown last?

While this is not the first government shut down that we have had, this is the first government shutdown in the past 17 years. Other government shutdowns are typically over within a few days, while others have lasted up to three weeks (21 days).

Is the Entire Federal Government Shutdown?

No. The government shutdown will affect only non-essential personnel which is estimated at 800,000 of the 3 million Federal Government employees.  On the list of those that do not have to worry about their paychecks are military personnel, the president and of course Congress (they write the laws – why wouldn’t they get their paychecks right?).

Will I still get my Mail?

Yes; the US Postal Service (USPS) will still continue to deliver mail throughout the Government Shutdown. While the USPS is essentially ran by the federal government, it is its own separate entity.
Will Universities and Schools be closed?

No however federally funded programs such as Pell Grants and Federal Student Loans could directly affect schools, according to the U.S. Department of Education, if the shutdown should last more than one week. Some schools receive as much as 20% of their funding from Federal programs which could cause major funding issues for schools if congress does not pass a resolution.

Will National Parks and National Museums be closed?

Yes; visitors to National Parks and Museums will be told to leave immediately and then entrances will be sealed off.  The @USCONGRESS Twitter page tweeted at 12:00 AM, “Due to a lapse in government funding, this account will not be active until further notice.” Hours before this, they made it clear that Visitor Centers would also be closed, “If there’s a lapse in gov’t. funding, the Capitol Visitor Center will be closed beginning 10/1 & all tours will be suspended.”

Campers at Yellowstone, the Grand Canyon, Joshua Tree and other National Parks have already been asked to leave and travelers at hotels within the parks will be given up to two days to remove their items and exit. National Museums and Presidential Museums such as the Smithsonian, National Zoos and even the Gerald R. Ford Museum will be closed and denying visitors.

Locally, the Gerald R. Ford Presidential Museum in Grand Rapids, MI was closed and will not reopen until the shutdown is ended. This has already affected the World’s Largest Art Festival, Artprize, in Grand Rapids, with several top exhibits are behind pushed to the curb as visitors will not be allowed to enter.

For more information on a Home Loan Grand Rapids, contact Riverbank Finance today.

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