A government shutdown would hamper Congress’ inability to approve funding for many federal services. As a result, most federal employees would be placed on furlough, while other “nonessential” departments would be closed entirely. With several mortgage programs backed by the government, affected by any possible shutdown, it’s important to understand how any government shutdown would affect your mortgage process. Although lasting effects will be determined by the length of any potential shutdown, we can look at some of the services we know would be affected.
According to the Department of Housing and Urban Development’s contingency plan, most employees would be placed on furlough because of any potential shutdown. Although borrowers will experience delays in mortgage processing, the Federal Housing Administration (FHA) would continue backing new loans within the Single Family Mortgage Loan Program, apart from reverse mortgages and Title 1 loans. In addition, the FHA would continue to pay claims, collect premiums, and make lender insurance approvals.
Similar to the Department of Housing and Urban Development, Ginnie Mae would be forced to downsize also.
In the event of a shutdown, the U.S. Department of Agriculture would pause all Rural Housing Service-related loans. Lenders would be able to close loans with outstanding commitments; however, the Department would be unable to guarantee them until any shutdown has ended.
The Internal Revenue Service (IRS) would also completely close as a result of any shutdown. This means borrowers could not request a tax return transcript (Form 4506-T), which is required by many lenders for loan approval. As a result, many lenders would alter their policies to meet the needs of borrowers until the government reopens.
With 17 lapses in the National Flood Insurance Program (NFIP) recorded between 2008 and 2012 alone, it’s also possible for the Program to lapse with any government shutdown. When this occurs, the NFIP will neither renew an existing flood insurance policy nor issue a new one. The lapse will not affect an existing policy until 30 days after it expires.
As government-sponsored enterprises that do not rely on appropriated funds, Fannie Mae and Freddie Mac would remain open throughout the shutdown. In fact, “on loans requiring a Form 4506-T Fannie Mae and Freddie Mac are expected to adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.”
Overall, the effects of a possible government shutdown on your mortgage process will ultimately depend on the length of the shutdown. For more information about mortgage lending during a government shutdown, or to learn more about home financing, contact one of our mortgage specialists today.