One may automatically be led to believe that a government shutdown doesn't impact buyers and sellers when, in fact, what it can do is slow down the process for buying and selling. While most housing markets across the country haven't yet taken a hit due to the partial government shutdown, this may change if the shutdown continues on. The spillover effect of delayed mortgage application processing, increased mortgage and rental payment delinquencies, and reduced spending in the broader economy is all absorbed by the real estate market.
The shutdown isn't affecting the whole government, as Congress has already passed several bills to appropriate monies to fiscal agencies in 2019, but there are several bills that have not been passed which would fund operations of the U.S. Department of Housing and Urban Development.
According to REALTOR®Magazine, "As of mid-January, most home purchase transactions were not interrupted because conventional mortgage loans backed by Fannie Mae or Freddie Mac—which comprise the bulk of home purchase finance transactions—were being processed without delay. The same was true for transactions backed by the Federal Housing Administration and the Department of Veterans Affairs, both of which use a delegated lender process in which pre-approved private lenders can originate loans without agency approval as long as the loans are underwritten in accordance with agency guidelines.
The one agency directly involved with home mortgages that has been caught in the shutdown is the Department of Agriculture, which backs loans through the Rural Housing Service. The agency has authority to operate a delegated lender program like FHA’s, but it has not yet implemented the program, and many of its employees are furloughed. “As of right now, all loans must go through RHS for processing, so these loans are not getting approved,” says Megan Booth, NAR’s director of housing policy."
Here are the highlights to how the government shutdown may affect you:
Lenders are unable to verify borrowers' income during IRS furloughs. This will lead to extended contingency periods, adjusted settlement time frames, and even refinancing will be affected.
Lenders can't verify borrowers' Social Security numbers to confirm identity because the Social Security website is not accessible. Without this information confirmed, lenders typically will not process a loan and therefor real estate closings will not occur.
The Federal Housing Authority (FHA) is operating with a severely reduced staff, but is not currently processing new loan applications for building approvals and first-time home buyer loans are processing very slowly.
The U.S. Department of Agriculture has cancelled all new loans and guarantees.
Fannie Mae and Freddie Mac are not shut down because they are not reliant on appropriated funds. The Department of Veterans Affairs, Making Home Affordable Program, HAMP and HAFA are all operating as usual and processing loans.
It's best to stay on track with the plans you already have in place with your lender so that, once things begin moving again after the shutdown, you are ahead of the game. And if you currently have your home listed on the market, keep it listed because there are still buyers looking!