Shutdown Could Stymie Mortgage Applications, FHA-Insured Loans

Shutdown Could Stymie Mortgage Applications, FHA-Insured LoansNew regulations have forced lenders to tighten standards and more thoroughly review mortgage applications since the financial crisis and throughout the housing recovery.
But with a government shutdown that has a ripple effect on income verifications and federal home-loan insurance, mortgage professionals are bracing for delays in an already tight market.
It has become standard to verify tax returns in mortgage applications. But if the IRS is closed or understaffed, loans could be stalled.
For government workers applying for mortgages, it’s a double whammy — they likely won’t be able to  verify their employment during the application process.
“This is going to be very disruptive to the mortgage industry and pretty much result in a freeze of the pipeline,” Craig Strent, CEO of Bethesda, Md.-based Apex Home Loans, told “New loans can be taken, but without IRS and Social Security number verifications, [they] will not be able to proceed to closing.”
Applications for all government-backed mortgages will continue to be processed during a government shutdown, according to the U.S. Department of Housing and Urban Development.
But HUD’s assurance has been wobbly. HUD initially said on Friday that it would stop working on applications for loans guaranteed by the Federal Housing Administration if the shutdown moves forward. But the agency reversed that position over the weekend.
The FHA, which represents about 15 percent of the mortgage market, will be severely understaffed.  A prolonged shutdown could also seriously affect the FHA’s ability to enforce the actions of FHA-approved lenders and mortgage quality.
Housing officials have not clarified how the FHA would be able to handle large loads of mortgage applications when it is planning to furlough the vast majority of staff members.
“There will be a limited number of exempted FHA staff available to underwrite and approve single family home loans,” said Jereon Brown, Deputy Assistant Secretary for Public Affairs. “The underwriting and approval process will definitely be slower than normal.”

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