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Tuesday, October 1, 2013

What Impact Will Government Shutdown Have on Real Estate Closings?

[Published Oct. 3, 2013, in five Jefferson County weekly newspapers]

Last Friday HUD said it would stop working on FHA applications, but over the weekend it reversed itself and said that a skeleton staff of workers would continue to process all applications for government-backed mortgages.

How much slower the process will be with a reduced staff was not indicated.

The biggest effect at this early stage of the shutdown will be that the IRS will not be able to supply transcripts of tax returns, which are required by underwriters to verify that borrowers have supplied accurate copies during the mortgage application process.  For transactions already approaching closing, transcripts were most likely obtained before Tuesday’s shutdown.

If the shutdown continues for longer than the three weeks which the last shutdown took, then we could see some serious impacts on transactions, and buyers who can pay cash will have a greater than usual advantage over competing buyers. 

Cash buyers are already more attractive, of course, but if the seller is confident in the buyer’s ability to close, he or she would in the past have been tempted to take a higher-price non-cash offer.  Not now.

With the shutdown in place, accepting an offer which included FHA financing would be most unattractive.  In the months leading up to this shutdown, about 60,000 closings per month have been financed with FHA loans.

The information I’m getting says that those loans backed by Fannie Mae and Freddie Mac will be unaffected by the shutdown because those government-sponsored entities (GSE’s) are financed not by the federal government but by fees paid by the lenders who are issuing those loans.

I’m reading that rural development loans guaranteed by the US Department of Agriculture will not be able to proceed during the shutdown, but that shouldn’t affect many metro-area readers of this column.

Unfortunately, we can’t be very hopeful that the stalemate in Washington will end. This situation is so much more ideologically poisoned than was the case 17 years ago.  When I read that Michele Bachmann had tweeted that she was “giddy” about the shutdown, it reinforced my suspicion that the Tea Party crowd would welcome a permanent shutdown of the government — Sen. Harry Reid called them “anarchists” — so there’s no reason to compromise. As long as their districts remain “safe” for them, they’ll just hold out. And they probably won’t care about extending the debt limit.

1 comment:

  1. The recent shutdown have caused a lot of disadvantages to every sectors of the country. Having a bill protection insurance is a wise thing to do if ever another shutdown becomes inevitable.