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October 10, 2013

Will the Government Shutdown Hinder Mortgage Financing and the Housing Recovery?

Category: Published Articles – admin – 2:53 pm

Lending professionals and banking executives have begun to consider the repercussions of the government shutdown. Could this political theater cause the housing recovery to retract? The initial reaction was good as most home loan rates fell which spurred many homeowners to begin the refinance process.

In a recent Wall Street Journal article, Nick Timiraos contemplates the ripple effect in progress. the shutdown means that hundreds of thousands of federal employees have been furloughed. Lenders are unlikely to approve home mortgages for people who are furloughed unless they can qualify for the mortgage without their government salary.

Second, the shutdown could undermine the economy, hindering the real estate recovery. Of course, this aspect of the shutdown will be harder to quantify and it won’t be decipherable from official housing statistics for several weeks.

Third, home loan processing is more difficult for some types of mortgages. In many cases, loan companies require borrowers to sign a form processed by the Internal Revenue Service so that they can verify incomes. The IRS is not currently processing those forms, which means mortgage companies have to decide whether they are willing to process loans without them. If you didn’t know, the FHA is still insuring mortgages, however they are operating with less employees, which means loans that need extra attention may be delayed until the government reopens. According to the Mortgage Bankers Association, home loan applications were up last week from the prior week, but, government applications for FHA mortgage refinance loans dropped. The USDA, is not approving home mortgages for its rural lending program, which means mortgages that did not close before October are on hold until the Federal government reopens. Read the original W.S.J. article.

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