How Has DC Shutdown Really Affected The Mortgage Market?

Lenders have had three days to digest Tuesday's partial Federal government shutdown, and while loan processing has been affected, the impact has not been as severe as originators feared or as has been reported elsewhere. While some loan types at some lenders are at a standstill, they are the exception.

Government-insured loans (FHA, VA, USDA) were naturally at the most risk, but the two biggest agencies are conducting business as usual. "FHA Connection" (the portal through which all FHA loans must pass) is operable; case numbers can be obtained and appraisals can be ordered. VA lending similarly continues to operate as normal. That leaves the USDA as the only agency unable to approve or process loans as the "GUS" underwriting system is down.

There are government-related considerations even for loans not insured by a government agency. For instance, federal flood insurance cannot be obtained due to FEMA closing, so purchase loans in flood zones are delayed. On the borrower's side of the equation, government employees may face extra hurdles in verifying income and employment, though most lenders have set up workarounds.

Even those not employed by the government may still receive income from Social Security. Borrowers needing to acquire copies of their awards letters will have difficulty as the Social Security Administration has greatly reduced their staff. In some cases, lenders must obtain confirmation of their clients' Social Security numbers from the SSA, and closings will be delayed in those cases.

Perhaps the biggest issue lenders face is the inability to obtain tax return verifications (TRV's) from the IRS to document the accuracy of borrowers' W2's and tax returns. Many lenders are allowing loans to be approved and closed without TRV's, which will still have to be processed before those loans can be sent to investors after closing. IRS Form 4506-T (request for tax transcript) is still required to be in the file in most cases, and different lenders have different policies informing how it will be handled after the shutdown ends.

Overall, the impact on mortgage processing and closings has been minimal to date, but jumbo loans and self employed borrowers (or others with complex income tax returns) may find lenders unwilling to close their loans without IRS verification of their income.

While agents, buyers, and sellers can breathe a sigh of relief in most cases, it remains prudent for borrowers to verify any impact on their specific scenario with their loan officer.