With the federal government in shutdown mode for more than a week now, the impact to the mortgage sector is growing. Contingency plans at government mortgage agencies and temporary guidance from the government sponsored enterprises have become more relevant.
GSEs
While the housing GSEs are not government entities, their business is impacted by furloughed employees and employees who work for government contractors, vendors and other impacted entities.
Temporary guidance issued by Fannie Mae and Freddie Mac address a short-term shutdown, and additional guidance will be issued if the shutdown lasts for a prolonged period. Fannie’s guidance became effective on Oct. 1, while Freddie’s went into effect on Oct. 8.
Fannie and Freddie will not accept delivery of loans to furloughed government employees prior to the seller’s obtaining a verbal verification of employment — though loan closings can take place before the verbal VOE is received.
On military borrowers, however, Fannie said a “Leave and Earnings Statement” can be used in lieu of a verbal VOE as long as it is dated within 30 days of the note date.
Freddie noted that VOEs for government employees can often be obtained from third-party service providers that continue to provide verification even for furloughed government employees. Freddie also said that sellers must have no knowledge that a borrower won’t be returning to work after the shutdown ends.
While all borrowers are required by Fannie to complete and sign the form 4506-T prior to closing, only borrowers with five to 10 financed properties are required to have IRS-executed 4509-T forms. But during the shutdown, Fannie will allow loans to be closed without an executed 4506-T form as long as it is executed prior to delivery.
Freddie said it doesn’t require form 4506-T to be processed by the IRS prior to closing, but it does require that borrowers sign the form before a loans closes and that the information be obtained as part of sellers’ in-house quality control programs.
On validation of Social Security numbers, Fannie is allowing loans to be close before the SSA Form 89 is verified — though verification must occur prior to delivery.
Fannie is allowing mortgage servicers to offer unemployment forbearance on monthly loan payments, repayment plans and trial period plan payments for the shorter of six months of the term of the shutdown.
The unemployment forbearance for furloughed employees will not require a borrower response package, and no prior approval from Fannie is needed. The unemployment forbearance plan needs to be communicated in writing.
Once the unemployment forbearance plan is successfully completed, Fannie borrowers can be placed on a new repayment or trial period plan.
Freddie highlighted that its existing options include short-term forbearance, short-term unemployment forbearance and extended unemployment forbearance and noted that furloughed government employees are eligible for both unemployment forbearance options.
Both secondary lenders said that during forbearance, credit bureau reporting must be suspended.
Fannie is requiring that late charges be waived for furloughed employees during the shutdown, while Freddie reminded servicers that late charges are waived for borrowers in forbearance.
Freddie said that servicers need to obtain a copy of the borrower’s most recent federal income tax return when the borrower is being evaluated for a workout option and the forms 4506-T or 4506T-EZ can’t be processed by the IRS.
HUD
Functions that are funded through multi-year appropriations will continue at the Department of Housing and Urban Development, as will functions that avoid imminent threat to the safety of human life or the protection of property. Such activities are associated with the Federal Housing Administration’s portfolio of insured mortgages and executed commitments for project-based rental assistance.
Employees excepted from furloughs will administer the portfolio of FHA-insured loans, including collecting premiums and paying claims. They will also handle functions that relate to the protection of government property.
Minimal operations will be maintained to support FHA’s existing portfolio. Call centers for FHA and the National Servicing Center will be maintained. Also continuing are the payment of claims, the servicing of Secretary-held notes and mortgages and ensuring the continuity of FHA’s REO disposition process.
Planned sales of defaulted notes will continue.
New single-family loans, except home-equity conversion mortgages and Title I loans, will be endorsed under multi-year appropriation authority. HUD says this will the ensure the health and stability of the U.S. mortgage market.
“Approximately 80 percent of FHA loans are endorsed by lenders with delegated authority,” HUD said. “The remaining 20 percent are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.”
On multifamily loans, projects with firm commitments and a scheduled closing date will move forward during the shutdown, as will closings on final endorsements that have critical external deadlines.
Ginnie Mae
Government-owned Ginnie Mae, which operates with just 108 employees, has been deemed as critical to the secondary market and will be allowed to continue incurring obligations and maintain operations during a shutdown.
This means Ginnie can issue commitments, issue mortgage-backed securities, receive and process monthly MBS and payment accounting data, pay securities, pay employees, utilize and pay contractors and travel for emergency purposes.
VA
The Department of Veterans Affairs’ Home Loan Guaranty Program, which is part of the Veterans Benefits Administration, will remain operational.
VA can continue its home loan program because VBA employees are being funded carryover balances for a limited time and then through mandatory funds.
USDA
The U.S. Department of Agriculture is not doing any home loan business.
“No new RD rural housing loans or guarantees would be issued, which would result in a setback in construction start-up, as well as a potentially costly inconvenience to buyers and sellers depending on a Single Family Housing loan or guaranteed loan closing,” the USDA said in its Rural Development Plan for Operations in the Absence of Appropriations. “A more permanent interruption in the program would cause a substantial reduction in housing available in rural areas relative to population., including those on furlough.”
