Ask the Underwriter is a regular column for HousingWire's LendingLife newsletter, addressing real questions asked to, and answered by, professional mortgage underwriter, Dani Hernandez.
Question:
How will the government shutdown affect borrowers seeking a mortgage?
Answer:
By continuing to hold funding of the federal government hostage to his demand for a border wall, President Donald Trump has successfully built a (hypothetical) wall to keep borrowers from realizing the American dream of homeownership.
Here’s how each type of mortgage is being affected by the government shutdown:
USDA loans: On hold indefinitely
Imagine being a borrower whose loan was approved by the USDA for the purchase of a new home: You received the clear to close on December 21, and the closing date was set for December 26. You packed up your apartment, the moving truck was scheduled, and in a few days you were moving into your dream home.
But on the night before Christmas, the phone rang and the voice on the other end informed you your closing had been canceled due to the government shutdown, and everything is on hold until the government reopens. Two weeks have now passed, you’re essentially homeless, living out of a hotel, everything you own is packed into a hundred boxes and you just heard the president say he would keep the government shut down for days, months or maybe even years!
This is exactly the scenario playing out for hundreds of families with USDA loans that were scheduled to close after Dec. 22, 2018.
The USDA loan program, which provides home mortgages to well over 100,000 borrowers annually, has been suspended. All scheduled closings have been put on hold indefinitely and no new applications are being processed.
VA Loans: Minimal delays
The Department of Veterans Affairs is fully funded for fiscal year 2019, so unless the shutdown lasts into 2020, VA Loans will continue to be processed normally. However, support staff at the VA and at the Department of Housing and Urban Development who handle underwriting or entitlement questions are unavailable, so VA borrowers may experience delays.
FHA loans: Who really knows?
The Federal Housing Administration never (or is it always) fails to amaze me when it comes to their inability to give a definitive answer to any question.
Question: How will the government shutdown affect the processing or closing of FHA-insured loans?
Answer: “The shutdown may delay the processing or closing of your FHA-insured loan. The decision to close a loan or not will be decided by each individual lender. Please contact your lender for the exact status of your FHA loan.”
Let me help explain this answer more clearly for you:
Depending on the type of lender you are working with, your loan may either be placed on hold indefinitely or just experience minor delays. Delegated lenders have authority to review and approve FHA loans themselves, while non-delegated lenders must have all FHA loans sent to FHA underwriters for review and approval.
If you are working with a non-delegated lender, your loan will be put on hold until the shutdown ends.
If you are working with a delegated lender, your loan most likely won't have to be put on hold, but there is still a chance it may be delayed.
For example, if your lender needs guidance on a specific question about your loan, there is no one at HUD to answer loan-specific questions during the shutdown and your lender may decide that it is too risky to close your loan until they get an answer from HUD.
The following types of FHA loans will need to be placed on hold until the shutdown ends, regardless of the type of lender you are working with:
- Home Equity Conversion Mortgages, or reverse mortgages
- Title 1 Property Improvement Loans
- Condos in projects that need to be approved by FHA
Conforming Loans – Fannie Mae and Freddie Mac: No delays! Loans for everyone!
Not only have Fannie and Freddie (the two largest government sponsored enterprises) continued to make conforming loans available without delays during the government shutdown, but in the spirit of Lady Liberty and Emma Lazarus (“Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me.”), they have told lenders to approve mortgages for government employees and other workers directly impacted by the shutdown, even if the borrower is not receiving pay when the mortgage is closed!
For example, the borrower is on furlough or is exempt from the furlough status, but is experiencing an interruption in pay due to the shutdown, they can still apply and close their mortgage loan.
Additionally, they have temporarily revised their requirements for government verifications:
Social Security number validation: When data integrity issues pertaining to the borrower’s Social Security number are identified, a lender may be required to validate the Social Security number with the Social Security Administration using SSA-89. Because these requests may not be processed during the shutdown, Fannie Mae is temporarily revising this policy to enable lenders to obtain the verification prior to delivery of the loan instead of prior to closing.
IRS transcripts: We require lenders to have each borrower (regardless of income source) complete and sign a separate IRS Request for Transcript of Tax Return (Form 4506-T) at or before closing. We do not require lenders to obtain tax transcripts from the IRS prior to closing.
