Government Shutdown Will Slow Mortgage Process
A large-scale shutdown of the U.S. government that began on Oct. 1 is likely to affect the approval of thousands of mortgage applications across the country. Until the government reopens on a full scale, borrowers can expect a slower pace in the process, and in some case a complete halt.
The shutdown, triggered by Congress' inability to approve a budget, is the first partial closure in 17 years and has sent nearly 800,000 government workers on furlough. Among those are staff that are essential in the mortgage approval steps. Lenders need employees at the Social Security Administration to verify borrower Social Security numbers and Internal Revenue Service employees to pull tax documents. Without access to this information, home loan approvals will inevitably be delayed.
Also among those furloughed are most employees of the Federal Housing Administration. Just 67 of its 2,972 staff will be on hand until the shutdown ends.
"There's a skeleton crew," said HUD spokesman Jerry Brown in a telephone interview with BusinessWeek. "We still intend on processing FHA loans." But with only "a handful of people managing the whole country for the direct endorsement backlog...it will probably be very slow," he added.
Yet with only 29 of the remaining employees tasked with handling loan endorsements, those seeking FHA loans right now are likely to face long waits. The FHA, along with the Department of Veteran Affairs guarantees about 25 percent of all U.S. mortgages.
The U.S. housing market has been making a strong comeback during the past year, as home sales have gained steadily and prices have shot up at a record pace. Some analysts worry about the effect this shutdown could have on the housing market as a whole. "The last thing we need is anything that shakes the confidence in a softly recovering housing market," David Stevens, chief executive officer of the Mortgage Bankers Association and former head of the FHA, said in a telephone interview. "If it's a short-term shutdown, it's a story about these employees put out of work. If it's long term, it's a broader story about the adverse impact to the economic recovery."
On a personal level, many Americans will be unable to lock in today's interest rates and may even lose their contracts because of the shutdown. Some anxious sellers may reject bids from traditional buyers in favor of all-cash purchases. Individuals could definitely feel the pain if their home sale deals fall through only because they can't obtain necessary documentation.
The real effect all depends on how long the shutdown lasts. The budget impasse stems from a refusal of Republicans to make a deal unless Obamacare, the new government-mandated health insurance program is repealed or revised. After an entire day of furloughs there still seems to be no compromise in sight and some are predicted the stalemate could last at least a few weeks. That certainly seems long enough to truly affect the mortgage world.