Real Estate Analysis and Commentary in Florida

Gov't Shutdown And Real Estate
October 14th, 2013 1:29 PM

The government closure that ended its second week Friday is beginning to weigh on one of the most important parts of the U.S. economy — the housing market.

Housing lenders rely on a variety of government data, such as verification of borrowers' income, which are unavailable with the partial closure of the Internal Revenue Service and other agencies.

The mortgage industry has found creative ways to work around the shutdown. Banks are getting data from other sources. Sometimes they're simply taking the risk of making loans without some information.

Nevertheless, the shutdown is delaying loans around the country. And some experts warn that home lending could be much more severely disrupted if the political stalemate in Washington persists much longer.

The biggest effect so far has been on nontraditional specialty loans.

Many FHA-backed reverse mortgages and property improvement loans have run into trouble. So have home loans in rural areas that are guaranteed by the U.S. Department of Agriculture.

Most jumbo loans are going through. But a few providers are declining to write them without IRS tax transcripts. Jumbos are loans that are too big to be backed by housing finance giants Fannie Mae and Freddie Mac or by the Federal Housing Administration.

The fear is that more types of loans will be affected by a prolonged shutdown. For example, the availability of FHA loans, a key source of lending throughout the US, could be threatened because most agency workers have been furloughed.

Lenders are continuing to use automated systems at Fannie, Freddie and the FHA to process loans, and so far delays have been slight, bankers say. But they can do that for only so long before backlogs develop.

As for income verification, many lenders are writing mortgages without getting tax returns from the IRS. Instead, they have the borrowers show them the returns, which they plan to confirm with the IRS when the agency fully reopens.

For the time being, banks are funding deals themselves. They can't sell the loans to Fannie and Freddie, as they normally do. Lenders run the risk of being stuck with a bad loan if the borrowers lie about their income.

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Posted by D. Jeff Smith on October 14th, 2013 1:29 PMPost a Comment

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