Last week, spending authority for most government agencies expired on midnight, January 29, 2018, as a result of ongoing conflict in the U.S. House of Representatives that prevented a national budget bill from being passed. At time of publication, the Senate had voted to pass a temporary spending bill to keep the government’s wheels moving through February 8, 2018, although that bill still lacked final approval.
Since there is not a permanent bill in place, there is still a chance for another shutdown once the bill expires.
National Association of Realtors (NAR) President Elizabeth Mendenhall expressed concerns about a long-term shutdown affecting the housing market. “The government shutdown will have an impact on real estate transactions should it continue for an extended period of time,” she said. “The National Association urges Congress to come together and reach an agreement to keep the government open and avoid any negative effects on our military, federal employees, housing markets and the economy.”
While extended closing times are likely the most immediate and impractical ramifications of a government shutdown for real estate investors, there are a number of other housing-related agencies and programs that will be affected as well. In some cases, these effects may extend to investors, so it is important to be aware of the potential impact. Agencies and programs, such as the Housing and Urban Development (HUD), Federal Housing Administration (FHA), Rural Housing Programs, the Veterans Administration (VA), the IRS and Social Security Administration (SSA), will be shut down with only a few exceptions and even fewer employees. Each of these government entities offers a contingency plan if there is a government shutdown.
Here is what you can expect if the shutdown business occurs:
FHA
Potential Housing Impact: delay, but lending continues
HUD’s Contingency Plan states the FHA will continue to endorse new loans on the Single-Family Mortgage Loan Program with an exception for HECM loans. However, they are not willing to make any new commitments in the Multi-Family Program during this shutdown period. “FHA will maintain operational activities including paying claims and collecting premiums,” stated NAR. “FHA Contractors managing the REO/HUD Homes portfolio can continue to operate. Loss mitigation programs will continue to operate. You can expect some delays with FHA processing due to short staffing.”
Rural Housing Programs
Potential Housing Impact: no new Direct Loans or Guaranteed Loans for the duration of the shutdown
The Rural Housing Programs, managed by the U.S. Department of Agriculture, have been instructed to not issue new rural housing Direct Loans or Guaranteed Loans during the shutdown. According to an article from inman.com, “The overall impact of a shutdown on the economy or housing market, however, will likely be negligible, since mortgage approval would resume eventually, said economists at Redfin and the National Association of Realtors. In October 2013, during which the government shut down for two weeks, sales volume declined modestly nationwide and in Washington D.C. but rebounded soon after government employees returned to work, according to Redfin data. Total sales volume declined 16.9 percent, month over month, but rebounded over several months.”
VA
Potential Housing Impact: little to none
The VA loan guaranty program will continue to function and is considered an “essential service.” The VA states, “95.5 percent of VA employees would either be fully funded or required to perform excepted functions during a shutdown.”
SSA
Potential Housing Impact: delays in mortgage originations, processing
The SSA has either suspended or closed a majority of their customer service functions. This includes the verification of SS numbers through their Consent Based SSN Verification Service, further causing issues for mortgage processing.
“As with IRS income verification, policies vary among lenders, with many choosing to exercise forbearance during the shutdown period subject to subsequent verification,” explained the article from NAR. “Fannie Mae and Freddie Mac are expected to adopt policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.”
IRS
Potential Housing Impact: delays in mortgage originations, processing
Tax season is not the ideal time for a government shutdown. The IRS has closed and suspended processing of all forms to include requests for tax return transcripts, further throwing a wrench into homebuying. These transcripts are required by many lenders for a myriad of loans including some FHA and VA loans. Expect delays if the shutdown continues.
However, NAR reports, “We have received indications that many loan originators are adopting revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac are expected to adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.”
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