The partial government shutdown has begun to disrupt the mortgage and housing industries, experts say.
The budget impasse entered its 19th day Wednesday with no seeming path to a resolution. On Tuesday night, President Donald Trump made a direct case to the American public for funding a southern border wall, blaming Democrats for the shutdown in a nationally televised address. House Speaker Nancy Pelosi, D-California, and Senate Minority Leader Chuck Schumer, D-New York, said Trump was manufacturing a crisis and fear mongering.
So far, just two relatively small federally-backed loan programs have been totally knocked out of commission — the forward-loan program backed by the U.S. Department of Agriculture (USDA), and reserve mortgages insured by the Federal Housing Administration (FHA).
USDA lenders can’t close on loans so long as the agency’s rural housing-services offices are closed, Georgia originator Shane Siniard told Scotsman Guide earlier this week. A USDA loan, once approved by a lender, has to be sent to the agency for a commitment. Siniard said once the government reopens, the USDA will face a large backlog of files, which could add weeks to the closing process.
“Every file that was sent to USDA will have to be reviewed so we’re expecting a long wait time even after we’re able to close these loans,” said Siniard, who is a senior loan officer with SWBC Mortgage Corp. He also said that lenders were having trouble obtaining tax transcripts from the IRS, which are needed for self-employed borrowers.
So far, though, the shutdown has not greatly impacted mainline programs.
The FHA has continued to process regular forward mortgages. Veterans Affairs (VA) loans, and mortgages guaranteed by the quasi-private companies Fannie Mae and Freddie Mac are typically not directly affected by government shutdowns. However, experts at the Mortgage Bankers Association (MBA) believe that a prolonged shutdown will eventually cause processing delays and disruptions.
In addition, roughly 800,000 federal workers are not getting paychecks, which could disrupt some home sales and cause late mortgage payments. Zillow estimated that federal employees who are not being paid right now make about $249 million in monthly mortgage payments.
Earlier this week, the FHA reminded lenders of their obligation to offer special forbearance to affected workers, and urged them to waive late fees.
“The current government shutdown is affecting the housing market, and ultimately delaying closings for aspiring homebuyers looking to obtain a mortgage, said Pete Mills, MBA’s senior vice president of residential policy and member services.
“We’re hopeful that the shutdown will end soon, so that borrowers will have access to a full range of mortgage offerings, allowing them to find the product that best suits their needs when purchasing a home or refinancing a loan,” Mills said.
The National Association of Realtors (NAR) reported that of 2,221 surveyed members, one quarter said the shutdown has had some impact on closings and contract signings. Some clients decided not to buy because they are government workers, and others were rejected by lenders on grounds of the furlough, according to NAR. Others decided not to buy because of the lost income due to the shutdown.
“The housing industry was already facing market challenges before any government closure,” NAR Chief Economist Lawrence Yun said. “The shutdown has made matters worse. A home purchase is a major expenditure that simultaneously involves a high level of excitement and anxiety, and the current government shutdown adds another layer of unnecessary complication to the homebuying process,” Yun added.