As the U.S. government shutdown enters its second week, there is some confusion over whether furloughs are affecting federal housing and mortgage programs.
Home buyers should know that Fannie Mae and Freddie Mac will continue operating normally during the government shutdown, as will their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. The Federal Housing Administration (FHA) will endorse new loans in the Single Family Mortgage Loan Program, but it will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. In addition, the VA Loan Guaranty Program will continue to process and guaranty mortgages, but some delays may occur.
However, other government-backed mortgage programs, like U.S. Department of Agriculture, will be impacted by the shutdown since field office personnel are not considered essential staff. Rural housing loans by USDA can only be funded if the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.
The Internal Revenue Service is closed and has suspended the processing of all forms, including tax return transcripts (Form 4506T). This form gives lenders permission to verify borrower income. This requirement is a policy of many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted.
“Federal housing programs – like Fannie Mae, Freddie Mac and FHA – do not require tax return verification,” said Dave Frederickson, president of the Salt Lake Board of Realtors®. “Some lenders, like U.S. Bank, have already waived the tax return verification policy. Other lenders are directly selling loans to Fannnie Mae or Freddie Mac. Most home buyers who need a mortgage will be able to secure one, even during the government shutdown.”
The Social Security Administration is closed and has suspended most customer service functions. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service will also be suspended during the shutdown, a further complication for mortgage processing. However, many lenders do not rely on this service to verify a borrower’s social security number.