What a Government Shutdown Means in the Mortgage World

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As a courtesy to all of our realtor and business partners, we want you to know that everyone at Absolute Mortgage Banking is prepared with contingency planning and greater communication should a government shutdown occur tomorrow.  It is important to know that a shutdown will cause delays, and everyone needs to plan accordingly.  Believe it or not, the Federal government is directly involved in nearly all U.S. residential mortgages, so any shutdown will have an impact, and it’s important to know where the problem areas are in this case.

Bottom line, if you’re dealing with an FHA, VA, or USDA loan, processing those loans will slow dramatically until the shutdown is over.  Fortunately, if you are dealing with either a conforming or non-conforming loan, processing will continue, but certain government-related elements to complete the file will be on hold, such as:

  • Social Security Administration verifications
  • Income verification by federal tax transcripts known as 4506(T) forms
  • Flood Certifications
  • Employment verifications for certain government employees

Don Frommeyer, President of the National Association of Mortgage Professionals, has said, “With a shutdown, lending isn’t going to stop” and that “the main problem would be for military personnel, who could be affected in the sense that they wouldn’t be getting paid.  We also don’t know if rates are going to be affected because the market often responds to what the government does.” 

Additionally, certain U.S. economic data would likely be delayed. During the 2011 budget battles (the last time we were faced with a possible shutdown), U.S. officials said no data would be coming from the Commerce Department or from the Bureau of Labor Statistics, which handles the closely-watched monthly employment report.  Without data, rates will likely be quite volatile, but our sense is that uncertainty will likely keep rates low.

And what about loans in line to fund..?  Fortunately, the FED wire system will remain intact to process wires and fund transactions, but it’s best to prepare for possible delays. 

Let’s not sound the alarm bells yet, though; aside from 21 days back in 1996, the government rarely shuts down for more than a day or two.  One would hope that this exercise in futility by our legislative branch is short lived enough to not cause us a serious distraction.  Should the shutdown persist, Absolute Mortgage Banking will be closely working with its counterparties to ensure business continuity and as few disruptions as possible.  

If you have any questions, feel free to reach out to any of our qualified mortgage professionals.

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Credit Myths

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Every once in a while it’s good to post a refresher on the top credit myths, as well as reiterate what constitutes a FICO credit score:

“I’m shopping for a mortgage and don’t want you to run my credit since that hurts my score.”

While it’s true that running your credit multiple times from multiple sources can negatively impact your credit score, running your credit multiple times from mortgage companies within a 30-day period has the same impact as running your credit ONE time

“I paid off that delinquent debt, so my score should vastly improve”

A whopping 35% of the credit score is based on payment history, so timely payments are the most important component of the score—any late or delinquent history has a dramatic impact on the score, and only time will improve the score…

“I max out my credit cards every month to get lots of points, but I pay them off every month, so I should have good credit”

30% of the score is dependent on the amount utilized in relation to the credit limit, so maintaining low balances and timely payments is the way to go

“I don’t have any debt, so my credit should be great!”

Since length of credit history represents 15% of your score, without a history of credit with timely payments, a pretty low score is inevitable—it’s  always best to establish and maintain accounts in a satisfactory manner to maximize your score

 “I recently financed a car and got a new credit card, so no problem with credit”

It’s certainly good to establish credit, but recent activity like obtaining new credit and having multiple creditors run your credit affects 10% of your score— the more activity, the lower the score

“I only have credit cards, but I make my payments on time, so my credit should be good”

Credit mix, i.e. credit cards, auto loans, mortgages, etc. account for 10% of your score, so having a good mix of credit only further improves the score

For more details on the above, check out creditcards.com which has a comprehensive article on FICO scores.

Other tidbits that you may find useful in maintaining the highest FICO score include:

  • Continue to use the oldest credit card that you have, even if it doesn’t have the most points, etc, as length of credit history is maximized
  • Make certain that if you served as a co-borrower on an account that the other party is making timely payments—the other party’s lack of timely payments will hurt you!
    • This is especially important in a divorce or similar situation, and it’s recommended to settle and close joint accounts when possible
  • Avoid disputing any item on your credit report with the credit bureaus—work with your creditor to resolve issues

For any questions related to credit or mortgages, reach out to your favorite mortgage advisor for assistance and guidance.