How the Government Shutdown Will Affect Your Mortgage

By David H. Stevens, CMB

Many people are asking what a US Government shutdown will mean for lending, especially for government loan programs. Today I asked several lenders across the country about the impacts. I also reached out to HUD. So, here you go with both the lender feedback and the official HUD response.

As you will see, whether a borrower, Realtor, or lender – there may be problems and it’s best to reach out to your lender to find out what this may mean to any transaction you may be working on. The short answer is that this shutdown will affect loans and if it extends, that impact may broaden significantly. Lenders may respond differently depending on how they view their risk exposure. For example, loans that require flood insurance may get a different response from respective lenders based on how they are interpreting communications coming from HUD. It would help everyone to take a few minutes and review all below as a starter, and again, please consult with your lender.

Lender A: We will fund 98% of all loans. Hold off on some self-employed borrowers we are not comfortable with. We will get IRS transcripts when the government gets back to business. If the shutdown goes over 30 days a problem starts building. Our loan pools settle about 45 days after closing so theres not a problem until that point.

Lender B: The issue is flood insurance.  There are private options but FHA does not take private flood insurance. USDA has stopped processing files. Reverse mortgages can not be insured. We are looking at our risk regarding 4506t. It is a real problem.

Lender C: For USDA we are dead in the water but we do very few.  The other issue is the Flood insurance.  If a borrower is needing flood insurance for their home we will have to wait until the shut down is over unless they get it thru a private insurance company.

Lender D: FHA will not keep the CAIVRS updated.  At this time endorsements continue, but we are not sure when commitment authority will cease.The primary issue seems to be with IRS transcripts and increase fraud activity. The additional concern is flood insurance – FHA does not permit private flood insurance and there will be no access to approval for national flood insurance.

And now the official policy from HUD:

  1. Will the government shutdown affect the processing or closing of FHA-insured loans?
    FHA will have limited staff during a shutdown and the processing or closing of FHA –insured loans may be delayed. All FHA underwriting and processing requirements remain in force during the government shutdown and no loan may proceed that cannot fulfill those requirements.
  2. Will Lenders have access to FHA Connection?
    Lenders will be able to access FHA Connection; however, FHA Connection interfaces to other government agency systems may not be available, or if available these other systems may not be fully supported so FHA Connection processes may not be fully functional.
  3. Can a lender obtain a new FHA case number?
    Yes. Lenders will be able to obtain a FHA case number from the FHA Connection. Please note that all FHA underwriting and processing requirements would remain in force on loans originated during the government shutdown regardless of system limitations during the shutdown period.
  4. Will Credit Alert Verification Reporting System (CAIVRS) be available?
    Yes. CAIVRS will be available to determine if a borrower has a delinquent federal debt.
  5.  Will FHA TOTAL Scorecard be available for lenders?
    Yes. FHA TOTAL Scorecard will be available. Lenders can close loans. As noted, all FHA underwriting and processing requirements do remain in force on loans originated during the government shutdown.
  6. Will lenders be able to get password resets for FHA Connection?
    Lenders will be able to continue to utilize the automated password reset options on FHA Connection, but resets that require FHA employee direct assistance will not be available.
  7. Will FHA endorse single family loans during a shutdown?
    FHA will be able to endorse single family loans (Title II only) during the shutdown. A limited number of FHA staff will be available to endorse new loans.
  8. Will FHA insure HECM loans during the government shutdown?
    Yes, with the exception of HECM and Title I loans, FHA will endorse single family loans; however, it may take a little longer to endorse.
  9. Will FHA insure HECM loans during the government shutdown?
    No, FHA does not have the authority to insure HECM loans during this period.
  10. Will Title I loans be insured during the government shutdown?
    No, FHA does not have the authority to insure Title I loans during this period.
  11. Can lenders with Lender Insurance (LI) approval continue to insure loans during the government shutdown?
    Yes, as long as FHA does not run out of commitment authority. If FHA runs out of commitment authority, the lenders’ LI Approval will be temporarily suspended.

 


David H. Stevens, CMB, is housing policy expert, former CEO Mortgage Bankers Association, and former Assistant Secretary of Housing and FHA Commissioner. Find more of his posts at http://www.davidhstevens.com