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Government Shutdown Has Growing Impact on Lending

Mortgage bankers warn of delays

Oct. 3, 2013

By Mortgage Daily staff

Mortgage bankers are warning of the increasing impact that the shutdown of the federal government will have on real estate finance the longer it lingers.

It is the third day that the federal government has been closed due to a budget impasse between congressional Democrats and Republicans.

Leaders of both Houses who met with President Obama last night indicated after the meeting that no progress was made.

The immediate impact is being felt most by furloughed federal employees who aren't receiving paychecks as lawmakers continue their standoff.

But mortgage lenders are likely to feel the pain the longer the shutdown continues, according to Mortgage Bankers Association Chief Executive Officer David H. Stevens.

"The longer it goes, the greater impact it will have on borrowers, the housing market and the national economy," he stated in an announcement Thursday.

Stevens said that lenders won't be able to obtain tax transcripts and social security number verifications on loans in process as a result of impaired operations at the Internal Revenue Service and the Social Security Administration.

They will also see delays on loans insured by the Federal Housing Administration as the Department of Housing and Urban Development has reduced functionality.

Since different loans have different requirements, Stevens noted that disruptions will vary by lender -- creating confusion among borrowers about whether their loans will close.

Multifamily lenders will also feel the pain as FHA financing is stalled.

"The furloughs can disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized," Stevens said. "For these reasons there must be a resolution so that borrowers and lenders are able to return to business as usual."

MBA is hosting its annual conference in Washington, D.C., later this month. Stevens said in a separate statement that it's too soon to know what the impact will be on the conference -- though he did note that metro DC traffic is currently down by around a quarter and train cars have been removed from the lines.

The MBA chief emphasized that the shutdown will have a significant impact on the roughly 100,000 weekly new and existing home sales.

"Delays due to 4506 needs, or social security safe scan alerts requiring confirmation from the SS administration, or more, could literally crumble the dominoes that make home sales work," Stevens said. "The one buyer who cannot close on time will trap the seller in his/her home, meaning they might not be able to be the home they were moving into, and so on. Moving trucks could sit idle, depleting income from these small business owners. Appliance sales will slow, and more as the broad eco system supported by the housing market contracts.

"Even if temporary, this has significant costs to the fragile recovery."

He added that if federal paychecks aren't distributed on the 15th, then federal workers -- many who live paycheck to paycheck -- could begin defaulting on their loans.

Stevens put things in perspective by noting that if the 800,000 newly unemployed workers were reflected in unemployment data -- it would have a substantial impact on financial markets.

"While not unemployed here, they are temporarily unpaid like the unemployed and this could impact credit performance and delinquency rates," he said. "This goes much farther, but the point is clear that this shutdown is much more serious than some may recognize."

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