Bumpy Ride Ahead — Expect Some Delays For Certain Loans
I asked my friend David Gaffin, Senior Mortgage Banker and Branch Manager at Fairway Mortgage – Hudson ([email protected]), whether and to what extent the federal government shutdown is affecting real estate closings in Massachusetts. Here’s what he has to say.
Fannie Mae, Freddie Mac Loans — Mixed Bag on Impact/Delays
In general, the shutdown doesn’t impact loan processing at these agencies because they’re not funded by the government. If you’re a federal worker or contractor, however, and your lender cannot get a verbal verification of employment from your federal employer prior to loan delivery, your loan approval may be denied or delayed. Verification of employment is a key requirement to get a loan from Fannie Mae and Freddie Mac, and the agencies cannot buy loans in which a borrower’s employment — and ability to repay — hasn’t been fully vetted. Also, if you loan requires SSA or IRS tax transcript verification, there could be delays, as discussed below.
FHA Closings May Be Delayed
With fewer staff working at FHA, some borrowers may see a closing delay due to increased backlog. Systems and functions that will NOT remain available during the shutdown are:
- Endorsements on HECM/Reverse mortgages (please watch for updates from reverse mortgage investors on any impact to those programs as a result)
- Homeownership Center staff will be furloughed so they will not complete HRAP condo project approvals that have been submitted. They recommend holding all submissions until the shut down is over.
- Loans with cases created during the shut down will have “holds” for the social security verification that happens in FHA connection. With the social security administration services also impacted this verification cannot occur. Until this is resolved these loans with cases created during the shut down won’t be able to close until the shut down ends and we can remove the verification “hold.”
USDA Loans Will Be Impacted
It appears that the shutdown will have a significant effect on USDA loans.
- Loans with a conditional commitment already issued by a RHS office before the shutdown will be able to close as normal.
- Loans that have not been reviewed by RHS staff and had a conditional commitment issued before the shut down will NOT be reviewed until after the shut down. This will impact closings as can not close a USDA loan without the conditional commitment issued. Effectively, even though a conditional commitment issue, until reviewed cannot close. CLOSING DELAYS, RATE LOCK EXTENSION FEES POSSIBLE TO CONSUMER
- Loans that have already closed but have not obtained the loan note guarantee prior to the shut down will also have that process delayed, potentially impacting secondary market operations.
SSA (Social Security Administration) Verification Impact
To process a mortgage application, lenders verify that your Social Security number is valid with the Social Security Administration. With significant delays expected in processing these requests, government-sponsored agencies have relaxed their rules to allow lenders to submit these reports prior to loan delivery rather than earlier in the loan process. If your Social Security number cannot be validated prior to this time, however, your loan could be denied.
- Third party vendors used to verify social security numbers may not receive responses from SSA during a shutdown. This has the potential to impact closings
- Borrowers may not be able to obtain income benefit documentation information in a timely manner during the shut down. This has the potential to impact closings
NFIP (National Flood Insurance Program)
- FEMA has instructed the NFIP to issue flood policies during the shut down, a reversal of previous direction
Internal Revenue Service — Tax Transcripts Back Online
As part of the usual underwriting process, lenders request copies of a borrower’s tax transcripts from the IRS. Originally, the IRS suspended processing tax transcript information when the shutdown began, but as concerns about a prolonged shutdown heightened, trade groups – including the Mortgage Bankers Association – lobbied the IRS to reconsider. The IRS will resume processing lender requests for tax transcripts to verify income for mortgage applicants despite the government shutdown. In a letter released Monday to participants of its Income Verification Express Service, the IRS said it will begin working through the backlog of requests that have piled up since December 22 and that the employees involved will return to work. There still could be delays in obtaining tax transcripts.
Another issue brought to my attention concerns tax lien releases. There have been reports that the IRS is not issuing or delaying the issuances of tax lien releases, so that would impact a seller’s ability to deliver clean title.
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If you have any further questions about the impact of the federal government shutdown on Massachusetts real estate and loan closings, feel free to contact David Gaffin directly at [email protected] or Tel: 508-683-0383
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