Government Shutdown Affecting Home Loans

The buzz is in the air: The government has shut down due to the federal government budget expiring Sept. 30. This has minimal and substantial effects, depending on what type of loan your borrowers are using.For instance, if your client is buying a home with a VA loan, then there is minimal concern since the Department of Veterans Affairs (VA) will continue to operate. Below is a breakdown of how the shutdown affects all loan programs and how it individually affects USDA, Conventional, FHA and VA loans.

Here’s something interesting before I break down the effects: People who think this congressional standoff will endure are moving money out of stocks and putting them into U.S. treasury bonds. Ironically, the government saying it won’t pay its debts for a while COULD actually push interest rates lower.

Effect on All Loans

  • Internal Revenue Service (IRS):
    The IRS has indicated that they will not process any forms, including the issuance of tax return transcripts (Form 4506T) during a government shutdown, which will delay loan processing.
  • Social Security Administration (SSA):
    In previous shutdowns, the SSA has only retained employees that deal directly with the processing of new claims and benefits. The likelihood is we would not be able to continue to verify social security numbers through the SSA, which can delay loan processing.
  • Flood Insurance:
    It may be difficult to obtain flood insurance through FEMA during this period, which could affect purchases if the shutdown goes on for a while. Please note that many lenders require evidence of flood insurance at time of purchase or closing.

Fannie and Freddie
Both of these entities won’t be directly affected, which means conventional loans will only be affected by the limits of the IRS, SSA and FEMA, as listed above.

FHA loans:
The FHA should not be significantly impacted, providing the shutdown is brief. HUD has provided the following information that applies to our daily operations:

  • FHA will be able to endorse single family loans, however, only a limited number of FHA staff will be available, so the process may take longer.
  • Limited FHA staff will be available to respond to questions, emails or other correspondence.
  • You will still be able to obtain an FHA case number from FHA Connection.
  • CAIVRS and FHA Total Scorecard will still be available.
  • Should FHA run out of commitment authority during a shutdown, then all lenders’ Lender Insurance approval will be temporarily suspended.

USDA / Rural Housing:
USDA offices are closed due to the shutdown. Existing loans submitted to USDA for review cannot and will not be reviewed until USDA offices reopen. No new or existing USDA loans can be submitted through the GUS system, as it is unavailable.

The closing of the USDA offices and unavailability of GUS may impact the ability of USDA loans to close when scheduled.

VA:
The Department of Veterans Affairs (VA) will continue to operate if there is a government shutdown.

  • Obtaining the veteran’s Certificate of Eligibility will still be available.
  • Submitting applications for new COEs and follow up on COEs requiring more research with the Atlanta Eligibility Center will still be available.
  • Ordering appraisals through the Veterans Information Portal will still be available.

Should you have any questions, on the above, feel free to contact us.

Here’s to ensuring the government’s closing does not affect your closing.