I have had many inquiries about how the government shutdown will affect government mortgages such as FHA (Federal Housing Administration), USDA (United States Department of Agriculture), and VA (Veterans Affairs).
Answer: The process can slow down, but there are still going to be employees working for FHA and VA. Since most everything is done electronically, I think we will see little effect on the consumer side of the loan process. The one program that will be affected is the USDA. USDA did announce that no new housing loans or guarantees will be issued through its Rural Development Programs.
Consumers need to keep in mind that the government generally doesn’t approve loans, they just insure them. The loan is processed and underwritten by the lender, so that process will not be affected, and then the loan is reviewed by government entity that is going to guaranty the loan. The guaranty process is where borrowers could see a delay.
Below are some facts that I found online:
Ginnie Mae, which guarantees the timely payment of interest and principal on loans federally insured loans including those backed by the FHA and the Department of Veteran Affairs (VA), will continue to perform "critical and essential functions." (USA Today)
If the government shuts down, lenders would still be able to process and close VA-backed mortgages, says Barbara Sheehan, assistant vice president of mortgage products for Navy Credit Union in Vienna, Va.
Sheehan says she doesn't expect borrowers to encounter major issues when they try to close on a VA loan next week, as long as the Department of Veteran Affairs' electronic system, used to process the loan files, remains operational during the shutdown.
"In reality there is not any direct interaction with the VA during the origination and processing and closing of the loan," she says. "If the system works, we should be fine. The most important thing is we have to get an appraiser assigned to us from the VA system," and that is done automatically through the system.
Lenders who provide VA-backed mortgage loans also often require verification of income with the IRS. If that hasn’t been done it could delay your closing. (BankRate.com)
One government lender that will indeed suspend its home loan activity, however, is the Department of Agriculture. The USDA says that no new housing loans or guarantees will be issued through its Rural Development programs in a shutdown. The department also warns that such a scenario could cause “a setback in construction start-up,” and if the shutdown lasts for an extended period, “a substantial reduction in housing available in rural areas relative to population.” (Forbes.com)
Now the shutdown is affecting conventional loans also. Many conventional loans require the lender to pull a borrower’s tax transcripts if the borrower’s tax returns are used for income qualification(there are loan programs that ONLY require W-2’s and not the full tax return). The IRS is currently not providing any tax transcripts. These are required to close the loan.
Social Security Income that is used to qualify must also be verified through the Social Security Administration if a Social Security Awards Letter and 1099’s are not provided by the borrower. Currently the Social Security Administration is not verifying any income. Again, this must be done to close the loan.
Although the above items are creating delays, keep in mind that loan processing has not changed. The majority of the loan process is moving forward as usual.