What Does the Government Shutdown Mean for Real Estate?

    Many are wondering what will happen in terms of real estate during a government shutdown. Despite conflicting reports, the good news is the Federal Housing Administration will not stop processing loan applications in the event of a government shutdown. Additionally, the U.S. Department of Housing and Urban Development (HUD)’s Office of Single Family Housing will continue to endorse new loans “in order to support the health and stability of the U.S. mortgage market” the agency said.

    What you can expect from a brief shutdown

    Processing will be slower paced due to reductions in staff; however, much of the system is computer-automated. Keep in mind with a limited staff, FHA won’t be available to answer questions as the loan moves forward. Because HUD is able to endorse loans, they don’t expect the impact on the housing market to be significant.
    Consumers should expect some delays but assuming the shutdown doesn’t last more than a week the impact should be minimal.

    Long-term shutdown

    “Some market disruption could occur downstream if lenders have trouble getting their VA and FHA loans processed, for example, we may see a temporary dry-up in these loans if the shutdown proves to be lengthy” according to Jason Van Steenwyk of RealEstate.com.

    If there is a lengthy delay, preapproved loans could expire and the end result could potentially be a higher interest rate causing deals to fall apart. In addition, current guidelines require lenders to verify at least one tax return with the IRS. During the shutdown, the IRS will not be doing this.

    The IRS also can’t process federal income tax returns or issue refunds (but it can deposit tax payments). Consumers who were expecting to use their tax returns as part of the down payment for a home purchase will temporarily not have access to these refunds.

    Conclusion

    For the most part, business will be as usual for borrowers seeking loans guaranteed by Fannie Mae and Freddie Mac, which together own or guarantee nearly half of all U.S. mortgages. For other buyers, much depends on where they are in the timeline of buying a house and when sales are scheduled to close.

    Quite simply, relax. The shutdown will most likely be temporary and will have minimal impact — if any — on homebuyers and sellers.

    Click Here for the NAR Issue Brief on the shutdown.

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