I have been getting a lot of questions about the impact of the possible government shutdown on the mortgage industry. The answer is, no one knows yet. In my opinion the government will shut down, because politicians love to play games with our money and lives. But I think it will end after a week or two of posturing, each party will demonize and blame the other, and each party will claim victory. Then we’ll simply go back to spending ourselves into oblivion, as we always have.
In the interim, a government shut down will impact the mortgage industry to some degree. It also may shut down the entire mortgage industry temporarily since so many loans are done through a government entity. I hear 90% of all loans are done through government, I believe the figure is much closer to 97% to 99%, based on my experience.
And most all loans require verification of your income, through the IRS, via analysis of your prior tax returns. You can read more about that here. If government shuts down, there will be no one at the IRS to process these requests, and loans won’t be able to settle and fund! And the larger issue would be if FHA, Fannie Mae, Freddie Mac and VA all shut down and simply refused to fund loans, even if there is already a loan approval in place and income verified, these settlement still may not happen.
The moral of the story is that if you have a loan scheduled to go to settlement in the next week or two, you may want to plan on securing extensions on the sales contract, just in case. A seller cannot hold a buyer accountable for a government shutdown, and will have to offer an extension. I do not see how anyone will be at risk of losing a deposit, for instance. However, if you have a lock-in on an interest rate expiring, that is another story. I can see a bank telling you that if you need an extension on a lock-in, and if rates are now higher than when you locked-in your rate initially, that you will have to take a higher rate or pay a fee to get an extension.
It’s all up in the air at this point, more answers as I know them.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
