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How DC Shutdowns Affect Lending

What happens to the process of taking out a mortgage if the Federal government actually shuts down? It’s a very complicated question; of course — a ‘government shut down’ doesn’t actually mean that every function of the US government suddenly ceases. Many branches are self-supporting like the Post Office; others are considered vital enough to continue being funded even if Congress and the rest of the higher-ups are on a forced vacation.

 The Federal Reserve

The Federal Reserve, despite the name, is actually not a governmental entity — debatably. The Fed consists of a board of directors, which is chosen by and reports to the Executive Branch — but the actual banks themselves, including every employee that isn’t on the board of directors, are private entities. So a government shutdown wouldn’t really keep the Fed from doing what it does. Notably, they would still continue buying mortgage-backed securities — and, in so doing, continue to keep mortgage rates down.

The Nationwide Mortgage Licensing System (NMLS)

The NMLS offices have stated in the past that they would remain open during any government shutdown, and their staff will continue to work. “Candidates should not expect their appointments to be cancelled or be affected by a shutdown of federal government agencies,” they said. This is to be expected since the NMLS is again not a Federal agency, but rather an independent entity run by a board of State mortgage regulators and/or banking commissioners.

The Veteran’s Administration

The VA performs services that are vital to many Americans. In the past the VA has continued business as usual during government shutdowns. There’s no reason to think anything would be any different should it happen this year or early next. So there’s no reason to think VA-backed mortgages would be noticeably affected.

The Federal Housing Administration

Similar to VA loans, FHA loans are unaffected. Case numbers and most FHA functions can still be handled through FHA Connection, their online portal.

 The IRS

While the IRS has many ‘vital’ employees that would still be hard at work collecting and auditing taxes, unfortunately, the employees who performs secondary tasks like verifying tax returns for lenders are not ‘vital’. This means that4506T tax transcripts, which are required by all lenders as a 3rd party verification of tax filings, will not be available. PrimeLending is still closing and funding loans without transcripts. They are reviewed on a case by case basis by an underwriter to limit any post closing issues. But very few are being denied. In addition, borrowers can order tax transcripts themselves and get them within 5-10 days.

 USDA

A government shutdown would prevent the USDA from underwriting and thus insuring any loans. This loan program will be completely off the table during a shutdown.

FEMA

FEMA might not seem terribly important to the mortgage industry, but they do perform an important service: they provide flood insurance without which a mortgage on a home in a flood plan cannot be closed. This would affect a very random selection of homes across all price ranges, again, slowing but not entirely eliminating the possibility of getting a mortgage for any home on a flood plain.

Mortgages for Shut-Down Employees

Finally, if you’re a Federal employee and your department is one that gets shut down, a mortgage you’re applying for maybe put on hold. The issue arises with verification of employment. If the furlough was caused by the recent shutdown then it can proceed. These too will be reviewed on a case by case basis.

Contact me if you are impacted by the government shutdown and have any questions.

Scott Storace

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