The partial government shutdown is now into day 14, and the U.S. is facing mounting financial pressure. According to a recent article from NBC, our nation is risking default on its bonds – an unfortunate move “that could send both the dollar and global financial markets into a tailspin.” How will this affect real estate? Without a strong domestic market, fewer people are likely to take out a mortgage. Likewise, during the shutdown, many federal and civilian workers have been furloughed, making the lending process much more difficult.
Even though nearly 350,000 civilian workers from the Department of Defense (DOD) have now been identified as “essential” and brought back to work, there are many private sector companies that have had to furlough employees because of the government shutdown. Lockheed Martin was set to furlough 3,000 workers on October 7, for example.
Furthermore, even if a federally employed home buyer is still working, many of the resources used to verify employment data are closed, meaning the lender will have a hard time moving forward with the loan paperwork. Also, loans that are backed by other government agencies like FHA loans or VA loans will be harder to process, as verification will likely be delayed. These delays can be the result of a number of different issues: social security number verification, employment verification, etc. may be held up due to the IRS or social security offices being closed.
Some mortgage lenders are having to get a little creative when it comes to closing a loan even though they’re unable to follow normal procedures. As an example, some lenders are closing certain loans without an executed 4506-T verifying borrower transcripts. Ask your lender if they are able to do this, as not all lenders can. If they cannot, be patient with them.
Remember that the government shutdown has the power to affect us all, and unfortunately there’s nothing your lender can do to control it.
USDA, FHA and VA Loans
One of the biggest concerns for borrowers during the shutdown is whether or not government-backed loans will still be available. Due to the fact that these loans have low or zero down payment policies, lower interest rates and fewer costly fees, they are very popular loan choices. Here’s a brief overview of the availability of these loan types:
USDA – The USDA offices are currently closed and no USDA mortgages can be issued.
VA – VA loans are still being made available; however, verification and closing is likely to be delayed. A Fox news station in Phoenix, AZ reported that a family of 9 was just about to close on a home with their VA loan when the shutdown occurred. At the time of the article, the family had been waiting almost two months. The Department of Veteran’s Affairs says loans are funded via user fees and should continue. However, a USA Today article reports that during the last shutdown, “loan Guaranty certificates of eligibility and certificates of reasonable value were delayed.”
FHA – The Federal Housing Administration says it “will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market.” This means that FHA loans will still be available; but again, don’t be surprised to encounter a few processing holdups.
Mortgage Rates Forecast
Currently Trending: Neutral
Mortgage rates remained flat for a while, with almost no change to rebate pricing. The uncertainty of the length of the government shutdown had a definite impact on this, providing a well-defined ceiling of resistance that traders were unwilling to trade above. Also, the absence of economic reports kept rates stable. Most notably, the jobs reports (that were supposed to be released Oct. 4) were missing – leaving economists and mortgage rate analysts unsure, so things stayed still.
The forecast for rates in the near future will hold more volatility. As the debt ceiling deadline draws near, traders will get anxious and tensions are sure to rise. This could be beneficial in a way, as traders continue a flight to safety in bonds, and mortgage backed securities pricing may improve. These improvements aren’t likely to stick around for long though, so it’s best to be cautious.
The Bottom Line
Once the news breaks that the shutdown is over and the debt ceiling is being resolved, prepare to act quickly. Rates are staying put due to the uncertainty; once an effective plan is in place, expect rates to move up again. Also, buyers who are hoping to qualify for a government-backed loan should prepare for delays or disappointment. Buyers should discuss their home financing needs, budget and expectations but they should also be prepared to have a uniquely challenging road ahead if they’re relying on a USDA, VA or FHA loan or refinance.