What Happens To FHA and VA In A Government Shutdown?
Well, it happened in 1995, but honestly, I can’t remember, I was 19, playing college baseball and living the dream as a teen. However, today as a mortgage advisor, it makes me crazy to think of this happening again.
Without going too deep and keeping it relevant, I am going to explain the effects of a government shutdown from a real estate and mortgage industry standpoint.
First off, FHA, VA and USDA home loans (which represents over 50% of all mortgages funded in 2013) will be postponed. That is the first domino in this ugly sequence of events. [However, I am currently reading information indicating FHA may be fine... I'll keep you posted]
[October 5, 2013 Update - FHA and VA loans are not going to be affected, **BUT** - here is what you need to know: With any type of financing, IRS tax return transcripts (form 4506T) must be ordered on a borrower to ensure the tax returns submitted match with the IRS filed returns. Also, a social security authorization form is required. BOTH of these processes have been handcuffed with the government shutdown delaying ALL mortgage approvals/fundings as of right now. Our bank has put a couple of processes in place to "work around" the IRS and SS Office closings, but, nonetheless, expect delays and be prepared to proved additional information.]
It’s officially been one week since the shutdown. I am currently taking mortgage applications, but locking my client’s interest rates on longer term locks to protect them in the event this shutdown lasts longer than another week or two.
Lastly, ALL USDA FUNDINGS have been suspended, and when USDA opens again, expect delays at the USDA office.]
Since those loan programs account for the majority of home loans originated every month, taking these programs off the market would cause a slowdown in home sales, and that would be felt beyond the housing market.
[Something to consider - once the government opens, you can expect longer than usual delays for banks to get the 4506T and social security authorizations back due to the pipeline of requests now building up.]
Enter the 2nd domino – Homebuying in America triggers a surplus of economic activity. New homeowners employ real estate agents, title companies, appraisers and home inspectors. Of the 9,300 employees that work for HUD (insurer of FHA loans), only 3% would remain on their job.
Also, what about banks? Underwriters, processors and loan officers – all will be affected. Most importantly, homeowners have their homes painted, they buy appliances, furniture, carpet and flooring. They add new decks, roofs and landscaping…
You get the point, all of that would come to a stop!
David Stevens, CEO of the Mortgage Bankers Association says, “The housing market is searching for recovery, and we’ve seen signs of optimism, but a government shutdown could have a sizable impact on the recovery.”.
Other Programs Impacted By A Government Shutdown
- National Parks and Museums
- Many government offices and programs
- Government back projects (medical research, transportation, etc.)
Programs NOT Impacted By A Government Shutdown
- Energy/power grid
- Disaster relief
- Social Security Pay
- Air traffic control
- Border Patrol
- National Security
- Banking System (bonds will still be sold)
In researching the actual chances and seriousness of a government shutdown, I found credible information from Mark Zandi, chief economist for Moody’s Analytics indicating he didn’t think it will happen. [WRONG] Zandi said in an interview with CNN, “The effects of a shutdown would be so dark, I can’t believe the legislators would not come to terms to end it.” [He's RIGHT]
[The silver lining - Rates have decreased again since the government shutdown. Another indicator that our economy is in a very delicate state right now. Investors are fleeing to the safety of mortgage bonds.]
I love helping my readers, so if you have any questions on your current mortgage or attaining a mortgage during the government shutdown talks, please do not hesitate to message me below or call me directly at (425)-350-7136.
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