Profound Effects of Shutdown for US Mortgage Markets
After the best year in real estate and lending since 2007, the 4th quarter is at risk due to the government shutdown.
Approved loans can probably move forward, but the next batch of loans, in application stages across the country are being held up for a variety of reasons, the first is lack of employees at the IRS to verify borrower income.
Today’s lender uses the IRS 4506 form on more than 90% of all loans to verify a borrower’s income. But that is not all.
The low down payment rural assistance loan provided by the USDA is also not operating on any level, even computer generated pre-approvals. So many rural sales and deals are currently derailed.
The FHA’s computer pre-approvals are working, but you aren’t going to be able to talk to anyone about the application. So far, the easy ones are proceeding. The rest? Very slow or not at all.
VA? In the best of times loans guaranteed by the Veterans Administration can be difficult, today? I am worried for veterans an active military members trying to get a loan through the VA.
The Bottom Line
Think of the mortgage market as a giant superhighway of loans, 12 lanes wide and moving fast. Cars (loans) stretch as far as your eye can see. But 50 miles ahead (call it 20 days of shutdown) there is a horrible, in this case avoidable, accident. All the cars are now stopped or moving at a crawl. While the cars are still trickling past the accident, the resulting log jam will quickly cause people to park their car (loan) and walk away. This is how we go from a traffic jam to gridlock in the US mortgage market. Without the ability to secure financing, the mortgage and real estate industry comes to a crashing halt.
Each new home purchase and loan closing generates an estimated $50,000 in economic growth. We learned in 2008 that as the real estate market goes, so goes our economy. Do not be fooled by those saying “its not a big deal.” It is a big deal; very big indeed. This is not a partisan issue. Americans oppose a government shutdown tied to the ACA (Obamacare) 72% to 22% according to Bloomberg News. This is a staggering figure! I can’t think of an issue, including health care, that is worth taking a wrecking ball to our economy, and if this dysfunction drags into the debt ceiling “debate”, the world economy with it.
- Government Shutdown -Day One in Mortgages
- Backlog for veterans could grow under shutdown – via USA Today
Photo source: NPCA on Flickr