Several of the Federal Government departments and agencies already have had their budgets approved by Congress. So they won’t be affected by the looming potential gov’t shutdown. A few areas of the government that may get caught up in a shutdown can have a direct effect on closing a mortgage.
The main potential issue can be an IRS verification of income (4506-T). If the verification can be procured through the IRS online system, underwriting will be happy…but there can be a disruption using paper submitted requests. This can be an issue to any loan requiring IRS verifications (most).
HUD ‘s operations will be scaled back. In particular Reverse Mortgages (Home Equity Conversion Mortgages HECMs) and Title I loans, may have issues getting endorsements.
VA should be OK
Below is a good breakdown on the specifics on which areas of the government have had appropriations previously approved by Congress, and additional specifics from the Mortgage Bankers Association.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
Government Shutdown Implications for the Mortgage Industry
As Congress continues to negotiate the remaining FY 2019 appropriations bills or another continuing resolution to fund the government, certain Federal agencies are preparing for the possibility of a partial government shutdown when the current continuing resolution expires just past 11:59pm on Friday, December 21. While it is widely expected that Congress and the President will come to an agreement that keeps the government operating, it is possible that a lapse in funding could occur.
Unlike recent shutdowns (or near shutdowns), a lapse in funding on December 22 would only affect a portion of the federal government. This outcome would be due to the fact that Congress has already passed five of the twelve total FY 2019 appropriations bills, and therefore the departments and agencies covered by those five bills would not undergo a shutdown.
Appropriations bills already passed:
Defense
Energy / Water Development
Labor / Health and Human Services / Education
Legislative Branch
Military Construction / Veterans Affairs
Appropriations bills not yet passed:
Agriculture / Rural Development / Food and Drug Administration
Commerce / Justice / Science
Financial Services / General Government
Homeland Security
Interior / Environment
State / Foreign Operations
Transportation / Housing and Urban Development
A shutdown would necessitate a furlough of certain federal employees and significant curtailment of agency operations. Employees exempted from a furlough include those performing emergency services protecting human life and property, individuals executing minimal activities to suspend agency operations, and other work deemed “excepted” by the Office of Management and Budget (OMB) and agency heads. Agencies and employees are “exempt” from furloughs if they are not affected by a lapse in appropriations. In guidance from former OMB Director Sylvia M. Burwell to the heads of agencies that was effective during the 2013 furloughs, “activities essential to the preservation of essential elements of the money and banking system of the United States, including borrowing and tax collection activities of the Treasury,” were exempt from shutdowns. However, current OMB Director Mick Mulvaney could provide different guidance, which could affect the mortgage industry. See below for a summary of potential mortgage-related impacts stemming from a shutdown.
I. HUD (including FHA and Ginnie Mae)
Based on prior shutdowns, the operations of the Department of Housing and Urban
Development (HUD), including the Federal Housing Administration (FHA) and Ginnie
Mae, would be reduced considerably, which may impede the processing and closing of
mortgage loans. Specifically, a government shutdown would cause the expiration of
FHA’s commitment authority and a potential cessation of operations. Notably however,
when Congress failed to issue appropriations in 1995, FHA did not stop operating
entirely.
MBA staff have spoken to FHA staff and it is our understanding that they will be able to
endorse single family loans, with the exception of Home Equity Conversion Mortgages
(HECMs) and Title I loans, during a shutdown.
In the case of a government shutdown, Ginnie Mae will retain much of its functionality.
Payments to investors in Ginnie Mae securities are excepted, as is the pooling of loans
already submitted. However, institutions with expiring commitment authority would not
be able to be reapproved during a furlough.
HUD recently released a detailed contingency plan, as well as FAQs, which provide
further information.
II. VA
Because the Department of Veterans Affairs (VA) is covered by one of the
appropriations bills that has already been passed, it will remain open should a partial
government shutdown take place.
Further, the VA loan guaranty program has historically been exempt during a
government shutdown, due to its entitlement program status. It has therefore been able
to offer VA-guaranteed loans during a government shutdown.
III. IRS
Concerns have been raised about the ability of the Internal Revenue Service (IRS) to
issue tax return transcripts should a government shutdown occur. Without tax
transcripts, loan processing may be delayed. Prior shutdown experience suggests that
the IRS would halt processing of paper-submitted requests. As with FHA, IRS online
networks may be available, but this outcome is not certain.
IV. SSA
As is the case with VA, because the Social Security Administration (SSA) is covered by
one of the appropriations bills that has already been passed, it will remain open should a
partial government shutdown take place.
V. Fannie Mae, Freddie Mac and the FHLBanks
Fannie Mae and Freddie Mac would not be directly affected except to the extent that
they rely on functions of other affected agencies, such as the IRS. The Federal Home
Loan Banks (FHLBanks) would not be directly affected.
Although it is difficult to quantify all of the impacts of a government shutdown, lenders
processing FHA loans or loans that need tax transcripts should anticipate delays and reduced
functionality from HUD and the IRS. A shutdown lasting a few days would slightly inconvenience
lenders in processing loans; however, a longer delay would clearly have more serious impacts.
Again, while it is not expected that a shutdown, should it occur at all, would last beyond a few
days, MBA will keep its members notified of any and all relevant updates.
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