If you’re looking at buying or refinancing a home and you need a VA, USDA or FHA mortgage, the looming government shutdown looks pretty scary. Headlines all over the Internet are screaming that borrowers won’t be able to get government loans during the shutdown and that this could send the housing recovery right into some giant toilet. Even reputable sites like CNNMoney have missed the mark, and here’s why.
Yes, HUD says that during the shutdown, only 3.8 percent of its 9,500+ employees will continue to work. This has led many to conclude that FHA won’t be able to underwrite loans, or at least, not many loans. And that’s probably true — the thing is, most FHA mortgages are not underwritten by HUD anyway. Most FHA mortgages (and VA mortgages, too) are underwritten by private mortgage lenders. Only lenders that have not been granted what’s called delegated authority won’t be able to process and fund FHA or VA loans.
Here’s what HUD has to say about it in its HUD FY2013 Contingency Plan for Possible Lapse in Appropriations:
The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market. (FHA endorsements currently represent 15% of the market.) Approximately 80% of FHA loans are endorsed by lenders with delegated authority.
If you’re interested in applying for an FHA mortgage, make sure the lender you work with has delegated authority. If the shutdown continues for any length of time, a lender without delegated authority might not be able to close your mortgage.
In addition, HUD’s 2013 Shutdown FAQs, which were just released, say:
FHA will be able to endorse single family loans during the shutdown. A limited number of FHA staff will be available to underwrite and approve new loans.
You’ll also want to ask the lender about closing your loan — some may choose to wait until FHA can endorse the loan, while others may close and then deal with the endorsement. That’s what you want if you’re the borrower. This is something to ask before you apply. Per HUD,
Yes, FHA will endorse single family loans; however, it may take a little longer to endorse.
The decision to close or not will be decided by each individual lender, so you should contact your lender.
The agency is trying to avoid hurting the housing market if possible:
Because we are able to endorse loans, we don’t expect the impact on the housing market to be significant, as long as the shutdown is brief. If the shutdown lasts and our commitment authority runs out, we do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market. We could also see a decline in home sales during an extended shutdown period, reversing the trend toward a strengthening market that we’ve been experiencing.
What about VA home loans? According to the VA’s Veteran’s Field Guide to Government Shutdown, “Services NOT impacted by potential lapse in appropriations” include “home loan processing.” It appears that a VA mortgage application will be processed as long as your lender is VA-approved. What about getting your Certificate of Eligibility (COE)? That process is pretty much automated. You can request it online or your lender can obtain it through its Web LGY system.
Those who fall through the cracks and can’t be helped by automated systems may experience more difficulty — not everyone is in the system and able to pull their COE electronically.
According to the Housing Assistance Council (www.ruralhome.org), the USDA has not issued guidelines for shutting down. However, a quick visit to their site gets you this message:Due to the lapse in federal government funding, this website is not available. After funding has been restored, please allow some time for this website to become available again.
A look at their contingency plan for a lack of appropriation gets you this:
RD (Rural Development) has no program activities that would continue in the absence of an appropriation.
It’s probably safe to say thta no USDA mortgages will be processed during the shutdown.
If you apply for a government loan, you must pass a CAIVRS (Credit Alert Interactive Voice Response System ) check. That means your name must not appear on a government database that tracks people who owe it money — folks with overdue taxes, defaulted student loans or mortgages that were guaranteed by the government, and other delinquencies. In HUD’s Shutdown FAQs for 2013, guidelines state:
CAIVRS will be available to determine if a borrower has a delinquent federal debt.
Not being government entities (although under government control), Freddie Mac and Fannie Mae will continue to operate as usual. However, the IRS will not be available to provide confirmation of borrower income. In response, lenders are requesting additional documentation from applicants. One national lender, for example, sent this instruction to its personnel:
In lieu of obtaining tax transcripts we will be asking for the most recent filed full tax returns for all borrower regardless of income source - this will allow us to ascertain if any 2106 expenses have been filed or if the borrower has any other Schedule C, E or F income not previously reported.
The shutdown will affect some borrowers, but not most. For example, if you hope to get a condo project approved for FHA financing (and it isn’t already on their list of approved projects), you’ll have to wait until the shutdown ends. If it continues too long, you can also expect processing to take longer, as employees will have a backlog to deal with.