How Does the Government Shutdown Affect Mortgages?

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I have been getting a lot of questions about the government shutdown that started Dec. 22, 2018 and how it affects mortgages. And what I’m finding is that there is a lot of incorrect information going around, so let’s set the record straight!

FEMA is OPEN – FEMA was part of the 25% of the government that shutdown.  Congress tried to prevent this by passing a bill that would extend the National Flood Insurance Program (NFIP) until May 31, 2019, but then FEMA said, “NO.” Their shutdown could have been prevented, but FEMA chose to be included as part of the government shutdown.  While this is a likely a political stunt, it was affecting consumers across the United States.  It was estimated that this could affect up to 40,000 transactions nationally per month. 

How could FEMA being closed affect my mortgage?  In most cases, it doesn’t.  Foote Capital Mortgage Co. can close loans that required flood insurance with “private flood insurance”; meaning you don’t need a FEMA flood insurance policy.  The only loan type that REQUIRED a FEMA NFIP policy is FHA; therefore, it was the only loan type that was affected by their shutdown.  However, FEMA opened back up on Dec. 28, 2018 (shutdown started De. 22, 2018).  Even though they are back open, their website is not currently being “actively managed” during the shutdown.

IRS is Closed – Lenders are required to go to the IRS and get transcripts of tax returns to verify that the tax returns given to the lender match what was given to the government.  With the IRS being closed, there is no way to verify the tax returns.  Now, depending on the situation of the borrower, there are a few work arounds, so we may be able to get around this one. However, in most cases tax transcripts are required on all loan types, so this could cause a delay in settlement.

Social Security Administration is Closed – When data integrity issues pertaining to the borrower’s social security number are identified either on their credit or in other systems that lenders are required to run prior to settlement, the loan cannot close until satisfactory results are received from SSA.  Again, this is only if the number was flagged, so this won’t be on all loans, but if the borrower is flagged it will delay settlement.

Verifications of Employment – With the government closed, there is no one there to do verifications of employment for government employees.  Fannie Mae is looking at way to get around this right now.

USDA is Closed – If the borrower is getting a USDA loan, their settlement could be delayed.  Because, after all the conditions are cleared on the file, the file must be sent to USDA for them to sign off PRIOR to settlement.  If they are closed, there is no one to sign off.  We do currently have clients writing offers with USDA and they are getting accepted by sellers.  We can go through the whole loan process and have everything completed on the file so that when USDA reopens, we get the sign off and go to settlement.

HUD (who regulates FHA loans) – They are open, but they are limiting some of their activities.

VA – is open as normal.

Please Note:

  • Every potential delay listed above is based off each individual borrower’s situation.  Meaning there is no black and white answer to any of the closures.  And some of the items are unknown until the file is underwritten by an underwriter. Please speak to a Foote Capital employee about how it will affect your file.
  • Keep in mind that when the government reopens, there will be a backlog.  This is also likely to delay settlements.

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