The government shutdown has entered its third week, and it appears congressional leaders are possibly getting closer to hashing out a deal. The Senate is reportedly ‘70% to 80% close’ to reaching an agreement on raising the debt ceiling and ending the shutdown, Sen. Joe Manchin, D-W.Va., told CNN in a report on Monday.
Meanwhile, concerns have been raised regarding the shutdown's impact on lenders and their ability to process mortgage applications. On Oct. 3, David Stevens, president and CEO of the Mortgage Bankers Association, released a statement saying the effect of the shutdown will only become worse as time rolls on.
‘The longer it goes, the greater impact it will have on borrowers, the housing market and the national economy,’ he said.
Of particular concern for lenders is the lack of access to critical documents needed to process loans – in particular IRS tax transcripts – as well as the ability to verify social security numbers and other borrower information. Stevens said FHA home loans will be delayed due to reduced functionality from HUD, IRS and the Social Security Administration.
‘Different loan programs have different requirements, and these disruptions impact lenders in different ways, leading to confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance,’ Stevens said, adding that there would also be significant impacts on multifamily lenders, especially rental housing properties awaiting FHA financing.
So how much has loan processing really been affected so far – and is the impact of the shutdown as severe as some had feared? To find out, MortgageOrb surveyed some lenders by email. What follows are responses to our questions:
1. How are you dealing with the shutdown so far? What are the main ways it is impacting your business?
Marisa Shapter, vice president, secondary marketing and licensing at Churchill Mortgage: The government shutdown has impacted our business in three main ways. We are unable to verify income directly with the IRS via tax transcripts, verify social security numbers through the Social Security Administration or submit loans to USDA on Rural Development loans.Â
Brian Koss, executive vice president of Mortgage Network: Fortunately, we had anticipated much of what we're seeing and had performed tasks involving the government in advance, while we still could. The shutdown has put a halt to new business involving USDA rural housing and many state bond programs. It has also taken away some options to sell because many investors still require the IRS and Social Security validations, which can potentially impact price.
David Williams, vice president of RightStart Mortgage: Luckily, the shutdown hasn't affected our business much at all. The only challenges we have seen so far are getting IRS Tax transcripts on our 4506T's and verifications of employment for some federal workers. Luckily, HUD is open, and our FHA business won't be affected, other than the challenges listed above and maybe some minor delays.
Howard Hoyt, president, USA Wholesale: Originators are still originating loans and will continue to do so as the government shutdown gets resolved. Various loan aggregators are making allowances for things like the IRS shutdown but generally, are still moving ahead with the loan process. Of course, originators need to know that even though their funding sources may be accepting loans for the time being, without 4506s, it does not relieve them of their obligations under their reps and warrants. But loans are moving through the system. On purchase loans, expected closing dates are being affected, and no one, especially among the Realtor community, is happy about those delays. Our advice for originators at this point is to be careful to set realistic expectations on process times, rate locks and scheduling commitments in general.
John Walsh, president of Total Mortgage: At this point, we have been marginally affected by the government shutdown as we are starting to see the impact of not being able to process tax transcripts. We continue to monitor the situation closely, as the probability of the shutdown's impacting mortgage lenders increases every day. In addition, mortgage lenders are reliant on the discretion of aggregators and the agencies to help script policies, as well as risk tolerances. This needs to be watched very closely as we move into the second week of the shutdown.
2. Are there workarounds to some of those challenges?
Marisa Shapter, vice president, secondary marketing and licensing at Churchill Mortgage: We made the decision to serve our customers and honor our customer commitments by continuing to fund loans without IRS tax transcripts. We validate income in so many ways these days, so we do still have the ability to review tax returns, W-2s, 1099s, etc. to authenticate income.
Brian Koss, executive vice president of Mortgage Network: In some cases, there are workarounds. For example, we could sell to a different investor who does not require an IRS check. But in the case of a rural housing loan or state bond program, those are shut down for now.
David Williams, vice president of RightStart Mortgage: Yes, we will temporarily be funding loans and running our IRS transcript verification post-closing. We will also be accepting verifications of employment for federal workers post-closing as well. We will also grant free extensions to anyone adversely affected by the shutdown.
3. What contingencies have you put in place?
Marisa Shapter, vice president, secondary marketing and licensing, Churchill Mortgage: In the rare cases we need to do an additional validation of a social security number, we have instituted workarounds by reviewing credit reports and ancillary documentation to confirm this information.
David Williams, vice president of RightStart Mortgage: We are currently working on contingency plans in case the shutdown lasts longer than a couple of weeks. In a worst-case scenario, we can verify the tax returns by obtaining a borrower's cancelled checks for the IRS payment to verify they match what was on the tax returns.
4. What is your plan should the shutdown last for weeks? Can you see reaching a point where you will no longer be able to take on new business?
Marisa Shapter, vice president, secondary marketing and licensing, Churchill Mortgage: Absolutely not, we have been helping our customers for the past 21 years, and have no intentions of letting the government shutdown stand in our way of this. We will continue to offer the same high level of service we did before the shutdown. Churchill will continue to originate quality loans and assist our customers in their home financing needs.
Brian Koss, executive vice president of Mortgage Network: If the shutdown continues, we will simply keep doing what we're doing today. In other words, we will continue to try to find another home for loans that no longer fit the closed-end product.
David Williams, vice president of RightStart Mortgage: I don't think so. We have a strong relationship with the GSEs (Fannie Mae and Freddie Mac). Minor inconveniences aside, we will be able to fund and sell loans for the foreseeable future.
Howard Hoyt, president, USA Wholesale: Unless this goes on for a very long time, the negative effects can be minimized. If we are still having this conversation a month from now or into 2014, we'll have to operate under a much different set of rules.
John Walsh, president of Total Mortgage: Total Mortgage has policies in place, and we continue to review them on an ongoing basis, so there will be limited impact to borrowers as long as the shutdown is in place.
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It should be noted that the FHA is open for business as usual – however, the agency is working with a reduced staff so therefore processing will be slower. The portal through which all FHA loan applications must pass, FHA Connection, is still operating; case numbers can be obtained and appraisals can be ordered. VA lending also continues to operate as normal.
Currently, only the USDA is unable to approve or process loans, as the GUS underwriting system is temporarily offline.
In addition, federal flood insurance cannot be obtained due to FEMA's closing, so purchase loans in flood zones are also delayed.
Overall, the impact on processing and closings appears to be minimal, to date. However, self-employed borrowers and those applying for jumbo or other loans may find lenders unwilling to close without IRS verification.
While agents, buyers and sellers so far remain relatively unaffected by the shutdown so far, it is strongly recommended that borrowers check with their loan officer as to any potential delays.
