What a Government Shutdown Means in the Mortgage World

Capitol

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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