What a Government Shutdown Means for REALTORS®
A Continuing Resolution (CR) to fund the federal government was not approved on Friday, December 21st, 2018 leading to a partial shutdown of some government operations. This partial shutdown, which includes some federal housing and mortgage programs, could cause settlement and financing delays. Here are a few ways loans may be impacted:
Federal Housing Administration
HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program except for HECM loans. It would not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. FHA Contractors managing the REO/HUD Homes portfolio can continue to operate. Some delays with FHA processing may occur due to short staffing (click here (link is external)for more info).
Internal Revenue Service
The IRS will close and suspend the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. Some loan originators may adopt revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac may adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.
Government Sponsored Enterprises
During previous shutdowns, Fannie Mae and Freddie Mac have continued normal operations, similar to their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. Fannie and Freddie may announce relaxed procedures that would permit closings to go forward without federal verification of Social Security numbers and IRS tax transcripts. However, lenders would still have to obtain federal verification of both before the GSE’s will accept loans for purchase. Any relaxed requirements would not apply to loan modification re-financings.
Rural Housing Programs
The U.S. Department of Agriculture would not issue new rural housing Direct Loans or Guaranteed Loans. Scheduled closings of Direct Loans will not occur. Scheduled closings of Guaranteed Loans without the guarantee previously issued would be closed at the lender’s own risk.
Social Security Administration
The Social Security Administration will close, but checks will still be processed and distributed. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service would be suspended. Fannie Mae and Freddie Mac are expected to adopt policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.
Borrowers who are Federal Employees
The inability to obtain Verification of Employment, in writing or verbally, could delay closing. Please check with the borrower’s lender for status.
As a result of the economic impact data provided by REALTORS®, and with the help of Congress and the White House, the Federal Emergency Management Agency (FEMA) announced that it will resume the sale of new flood insurance policies and the renewal of expiring policies on December 28th. Click here to view the FEMA announcement.
Courtesy of the National Association of REALTORS. More info here.
Thank you to Aimee Waltz, Fidelity Mortgage, NMLS: 166422, contributing additional content for this article.