Update, Jan. 14: The IRS workers who verify borrowers' incomes as part of the mortgage process have returned to their posts, the Washington Post reported. Without income verification, many mortgages were being held up. Other government mortgage programs are still experiencing delays, however.
The ongoing government shutdown, one of the longest ever, is having a variety of impacts on Americans, including jeopardizing the dreams of aspiring homeowners.
The Federal Housing Administration is operating with limited staff amid the shutdown, which means home loan endorsements may be delayed, according to a new report from Zillow.
As a result, some loans may be unable to close, meaning buyers will not be able to complete purchases, Zillow said.
A Zillow analysis found that about 3,900 mortgage originations are processed each business day for loans backed directly by federal government agencies such as FHA and the Rural Housing Service. In other words, by Jan. 8, when Zillow issued its data, as many as 39,000 mortgages could have been affected by the government shutdown.
There are various government-backed mortgage programs. Beyond FHA, there are also United States Department of Agriculture and VA loans, which are partially guaranteed by the U.S. Department of Veterans Affairs. (Learn all the steps for buying a house.)
When these types of mortgages are delayed, it typically affects those facing the greatest hurdles to homeownership. Many lower-income or first-time buyers opt for FHA-insured loans because they allow for smaller down payments and offer more forgiving credit score requirements than conventional loans.
Those seeking reverse mortgages or home-improvement loans may also be impacted, as the FHA will not process either during the shutdown, said Alexander Casey, policy advisor for Zillow.
“It all depends on what type of loan product you’re getting and what type of lender you’re using,” said Casey. “There are some delegated lenders that can approve FHA loans themselves. But you might get some delay if the lender needs some guidance, because there’s no one at FHA to answer the phones so your delay may be more substantial.”
The impact to Fannie Mae & Freddie Mac loans
Beyond government loan programs, there are Fannie Mae, Freddie Mac and jumbo loans, all of which come with document requirements involving government agencies, explained Faramarz Moeen-Ziai, vice president of mortgage banking for Commerce Home Mortgage.
Everything from IRS transcripts used to confirm income to Social Security Administration verifications may be part of the documentation needed to finalize these mortgages, said Moeen-Ziai.
“Chase has waived transcript requirements during the shutdown saying, ‘We’re not going to stop business, ”said Moeen-Ziai. “But there are certain situations where IRS transcripts are mandatory.”
Those situations may include when there’s something unusual on a tax return or when the borrower is self-employed and has complex returns. If a borrower had a sudden, dramatic increase in income, that may also trigger mandatory transcript requirements.
“If IRS transcripts or Social Security Administration verification are needed, those requirements are probably not going to be waived. The lender will say, ‘Sorry you have to wait until the shutdown is over,’” said Moeen-Ziai.
Perhaps the most significant impact of the shutdown on mortgages has yet to fully materialize. That will come when home buyers miss deal-breaking funding deadlines because of the government shutdown. In some cases that may mean not only losing the house if the seller declines to extend deadlines, but also a deposit.
If you’re buying a $300,000 house and the deposit is 3%, that’s $9,000 you could going to lose, said Moeen-Ziai.
“If a seller is dealing with someone whose loan won’t close and they can go to another buyer who doesn’t have a problem with a loan, it’s possible they could give another buyer a shot,” said Moeen-Ziai. “People are probably asking for patience from sellers and for more time. But we’re probably getting to the limit of people’s patience.”