How Might a Government Shutdown Impact the Loan Process?

By: • Wed, Apr 6 2011, 2:32 PM

Congress needs to pass a "Continuing Resolution" by midnight on Friday, April 8th to avoid a government shutdown.

From Wikipedia: A continuing resolution is a type of appropriations legislation used by the United States Congress to fund government agencies if a formal appropriations bill has not been signed into law by the end of the Congressional fiscal year. The legislation takes the form of a joint resolution, and provides funding for existing federal programs at current or reduced levels.

Reuters Headlines...

RTRS-WHITE HOUSE SAYS PROCESSING OF SOME PAPER-FILED IRS TAX REFUNDS WILL BE SUSPENDED IF THE GOVERNMENT DOES HAVE TO SHUT DOWN

RTRS-WHITE HOUSE SAYS PROCESSING IRS TAX AUDITS WOULD ALSO BE IMPACTED BY A GOVERNMENT SHUTDOWN

RTRS-PROCESSING OF SMALL BUSINESS ADMIN LOANS WOULD BE AFFECTED IF GOVT SHUTS DOWN - U.S. OFFICIAL

RTRS-US OFFICIAL - GOVERNMENT SHUTDOWN WOULD IMPACT FHA, HAVE "SIGNIFICANT IMPACT" ON HOUSING MARKET IN PEAK HOME-BUYING SEASON

RTRS-US OFFICIAL-NUMBER OF FEDERAL WORKERS WHO WOULD BE IDLED COULD BE IN THE SAME VICINITY AS THE 800,000 IMPACTED IN LAST SHUTDOWN

RTRS-US OFFICIAL-ELECTRONIC FILING OF US TAX RETURNS WILL CONTINUE IN THE EVENT OF A GOVERNMENT SHUTDOWN

RTRS-SIGNIFICANT NUMBER OF PENTAGON CIVILIAN EMPLOYEES WOULD BE FURLOUGHED IF GOVT SHUT DOWN - U.S. OFFICIAL

RTRS-US OFFICIAL-MILITARY WILL BE PAID UP TO APRIL 8TH IF GOVT SHUTS, SALARIES WILL ACCRUE AFTER THEN BUT PAYMENTS WILL BE DELAYED

RTRS-OBAMA SAYS GOVERNMENT SHUTDOWN WOULD HURT U.S. ECONOMY RIGHT WHEN IT'S GAINING MOMENTUM

RTRS-OBAMA URGES DEMOCRATS AND REPUBLICANS TO MAKE COMPROMISES TO GET BUDGET DEAL, KEEP GOVERNMENT RUNNING

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HOW WOULD A GOVERNMENT SHUT DOWN HAVE A "SIGNIFICANT IMPACT" ON THE HOUSING MARKET?

INITIAL THOUGHTS: The government's servers won't be taken off-line. The network will still be up and running. Essential staff will still be in place. FHA Connection is web-based but ordering FHA Case Numbers ASAP is advised. The IRS is an important part of the loan application process. Tax transcripts are generally accessible online but it seems like a safe move to get 4506-T's ordered now. One obvious thought is not being able to verfiy the employment status of borrowers with government jobs. Plus there could be a delay in getting current paystubs. FHA and Ginnie Mae aren't the only program offices within HUD though. HERE IS A LIST OF HUD PROGRAMS THAT COULD BE IMPACTED.....

Community Planning and Development

    * Community Development Block Grants (CDBG) (Entitlement)
    * Community Development Block Grants (Non Entitlement) for States and Small Cities
    * Community Development Block Grants (Section 108 Loan Guarantee)
    * Community Development Block Grants (Disaster Recovery Assistance)
    * Community Development Block Grants (Section 107)
    * Community Development Block Grants for Insular Areas
    * Community Development Block Grants (Rural Innovation Fund)
    * The HOME Program: HOME Investment Partnerships
    * Housing Trust Fund
    * Shelter Plus Care (S+C)
    * Emergency Shelter Grants (ESG) Program
    * Surplus Property for Use to Assist the Homeless (Title V)
    * Supportive Housing Program
    * Continuum of Care Program
    * Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program
    * Rural Housing Stability Assistance Program
    * Brownfields Economic Development Initiative (BEDI)
    * Economic Development Initiative ("Competitive EDI") Grants
    * Empowerment Zones
    * Self-Help Homeownership Opportunity Program (SHOP)
    * Capacity Building for Community Development and Affordable Housing
    * Housing Opportunities for Persons With AIDS (HOPWA)
    * Loan Guarantee Recovery Fund for Church Arson and Other Acts of Terrorism (Section 4)

Federal Housing Administration (FHA)

    * Single Family Housing Programs
          o One to Four Family Home Mortgage Insurance (Section 203(b))
          o Mortgage Insurance for Disaster Victims (Section 203(h))
          o Rehabilitation Loan Insurance (Section 203(k))
          o Single Family Property Disposition Program (Section 204(g))
          o Loss Mitigation
          o FHA-Home Affordable Modification Program (FHA-HAMP)
          o Graduated Payment Mortgage (GPM) (Section 245(a))
          o Adjustable Rate Mortgages (ARMs) (Section 251)
          o Home Equity Conversion Mortgage (HECM) Program (Section 255)
          o Manufactured Homes Loan Insurance (Title I)
          o Property Improvement Loan Insurance (Title I)
          o Counseling for Homebuyers, Homeowners, and Tenants (Section 106)
          o Good Neighbor Next Door
          o Energy Efficient Mortgage Insurance
          o Insured Mortgages on Hawaiian Home Lands (Section 247)
          o Insured Mortgages on Indian Land (Section 248)

Risk Management and Regulatory Affairs

    * Manufactured Home Construction and Safety Standards

Multifamily Housing Programs

    * Supportive Housing for the Elderly (Section 202)
    * Assisted-Living Conversion Program (ALCP)
    * Emergency Capital Repairs Program
    * Multifamily Housing Service Coordinators
    * Manufactured Home Parks (Section 207)
    * Cooperative Housing (Section 213)
    * Mortgage and Major Home Improvement Loan Insurance for Urban Renewal Areas (Section 220)
    * Multifamily Rental Housing for Moderate-Income Families (Section 221(d)(3) and (4))
    * Existing Multifamily Rental Housing (Section 207/223(f))
    * Mortgage Insurance for Housing for the Elderly (Section 231)
    * Supplemental Loans for Multifamily Projects (Section 241)
    * Supportive Housing for Persons with Disabilities (Section 811)
    * Multifamily Mortgage Risk-Sharing Programs (Sections 542(b) and 542(c))
    * Mark-to-Market Program
    * Self-Help Housing Property Disposition
    * Renewal of Section 8 Project-Based Rental Assistance

Healthcare Programs

    * New Construction or Substantial Rehabilitation of Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities (Section 232); Purchase or Refinancing of Existing Facilities (Section 232/223(f))
    * Hospitals (Section 242)

Public and Indian Housing

    * Housing Choice Voucher Program
    * Homeownership Voucher Assistance
    * Project-Based Voucher Program
    * Public Housing Operating Fund
    * Public Housing Capital Fund
    * Public Housing Neighborhood Networks (NN) Program
    * Revitalization of Severely Distressed Public Housing (HOPE VI)
    * Choice Neighborhoods
    * Public Housing Homeownership (Section 32)
    * Resident Opportunity and Self-Sufficiency (ROSS) Program
    * Family Self-Sufficiency Program
    * Indian Community Development Block Grant (ICDBG) Program
    * Indian Housing Block Grant (IHBG) Program
    * Federal Guarantees for Financing for Tribal Housing Activities (Title VI)
    * Loan Guarantees for Indian Housing (Section 184)
    * Native Hawaiian Housing Block Grant (NHHBG) Program
    * Loan Guarantees for Native Hawaiian Housing (Section 184A)

Fair Housing and Equal Opportunity

    * Fair Housing Act (Title VIII)
    * Fair Housing Assistance Program (FHAP)
    * Fair Housing Initiatives Program (FHIP)
    * Equal Opportunity in HUD Assisted Programs (Title VI, Section 504, Americans with Disabilities Act, Section 109, Age Discrimination Act, and Title IX)
    * Section 3 Program
    * Voluntary Compliance

Policy Development and Research

    * Policy Development and Research Initiatives

Government National Mortgage Association (Ginnie Mae)

    * Ginnie Mae I Mortgage Backed Securities
    * Ginnie Mae II Mortgage Backed Securities
    * Ginnie Mae Multiclass Securities Program
    * Ginnie Mae Platinum Securities Program
    * Healthy Homes and Lead Hazard Control
    * Office of Sustainable Communities
          o Sustainable Communities Initiative

Temporary Programs

    * Housing and Economic Recovery Act of 2008 (HERA) Programs

    * HOPE for Homeowners
    * Neighborhood Stabilization Program (NSP1)

    * American Recovery and Reinvestment Act of 2009 (Recovery Act Programs)
          o Neighborhood Stabilization Program 2
          o Green Retrofit Program for Multifamily Housing
          o Healthy Homes Demonstration Grant Program and Technical Studies Grants
          o Homelessness Prevention and Rapid Re-Housing Program (HPRP)
          o Lead-Based Paint Hazard Control Grant Program and Lead Hazard Reduction Demonstration Grant Program
          o Indian Housing Block Grants (Formula)
          o Indian Housing Block Grants (Competitive)
          o Public Housing Capital Fund (Formula)
          o Public Housing Capital Fund (Competitive)
          o Tax Credit Assistance Program (TCAP)
    * Dodd-Frank Wall Street Reform and Consumer Protection Act Programs
          o Neighborhood Stabilization Program 3
          o Emergency Homeowners Loan Program

Other Resources

    * Neighborhood Reinvestment Corporation (NeighborWorks America)
    * U.S. Interagency Council on Homelessness

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We see this childish Congressional behavior as politics in their purest form. STANDARD OPERATING PROCEDURES ON CAPITOL HILL. Playing this game of chicken with the bond market carries massive consequences. We're cutting off our nose just to spite our face here. The last thing we want to do is put the U.S. credit rating in the global spotlight. We don't want bond vigilantes chasing after our debt like they are EU debt right now. A "bitter fight over budget cuts" unfortunately would do just that. I hope our so called leaders in Washington avoid that bitter fight. I hope they act like adults and avoid grand-standing and pandering. We don't need bickering. We need common ground. We need to develop a plan and make some moves to restore confidence in our country.

Besides the observations made above, we don't know exactly how a government shutdown would impact the housing market, we don't see anything positive coming from it though....mortgage rates certainly wouldn't react well!

WHAT ELSE ARE WE MISSING HERE?

Do Fannie and Freddie count as government or is that just an "implied" shutdown?

UPDATED AT 9:00 ON APRIL 7, 2011...

Suntrust sent this out last night:

News reports continue to develop regarding a potential government shutdown if budget agreements are not reached by Friday, April 8. Should this occur, there are several areas where our business could be impacted:

Tax transcript: If the IRS is on furlough, we will not be able to obtain tax transcripts. If you have a registered/locked loan with us and have not already delivered it to the branch, please upload your completed and signed 4506T into eMagic TRIO now. Even though the TRIO folder will not contain a complete file, please upload your registration or lock confirmation and select "deliver to Underwriting." You will need to check the audit trail in TRIO to confirm receipt by SunTrust Mortgage. We will order the transcripts prior to the shutdown to minimize a potential delay when you deliver your loan file.
Flood insurance: Borrowers may have difficulty obtaining flood insurance through FEMA during this period.
FHA: We understand that HUD may not support FHA Connection during their hiatus, and therefore we will not be able to order case numbers or perform other functions in FHA Connection while they are on furlough.
Rural Housing: We are not sure of the impact to GUS since that system was created since the last shutdown in 1995. However, we should anticipate the system will not be available. In addition we will not be able to get conditional commitments during the shutdown.
VA: We should anticipate that the system by which VA appraisals are ordered will not be available

UPDATED AT 3:45 ON APRIL 8, 2011

An update from HUD: We know many of you are anxious about where things currently stand with regards to HUD’s Fiscal Year 2011 budget. As we are sure you are well aware, the continuing resolution (CR) under which HUD – along with the rest of the Federal Government – is currently operating, is set to expire tonight. Should the government shut down, most of HUD’s functions would cease.

Housing Counseling Agencies should be aware that:

HCS - The Housing Counseling System (HCS) will not be available. Consequently, counseling agencies will be unable to update agency profile information, submit activity data, or otherwise utilize the functionality in HCS.
Counseling Agency Search Functionality - The HUD.GOV website will be available in “Maintenance Mode” only. This means that HUD.GOV will be up but there will be no updates made to pages on the site. As a result, HUD’s website housing counseling search functionality, and similarly HUD’s toll free number to search for counseling services, will still be available to households seeking counseling services. However, with HCS down, the data behind the search functionality will not be updated.
Grant Funds – While the LOCCS system should be functioning, there will be no GTRs to approve requests for disbursements. Consequently, no grant disbursements will occur during a shut down.
Inquiries – Counseling agencies will not be able to reach HUD staff with inquiries. General inquiries about FHA programs can be directed to 1-800-CALL FHA (1-800-225-5342). However, this call center will have very limited information regarding the Housing Counseling Program and the issue covered in this message.

We hope this is helpful for you to make any preparations that may be necessary in the event that a shutdown does occur. We look forward to an FY 2011 appropriation and the resumption of services as soon as possible.

UPDATED AT 5:30 ON APRIL 8, 2011

Guidance from GMAC...

Pricing Impact

GMACB will continue to accept new locks on FHA, VA and USDA loans. Clients should consider possible delays in government loan processing when locking in rates due to limited capacity of government processing systems such as: FHA Connection, TOTAL Scorecard, GUS and Veterans Information Portal.
GMACB will accept lock extensions on FHA, VA and USDA loans.
There is no impact to agency and Jumbo lock transactions.

Closing, Funding and Purchasing Impact

GMACB Correspondent Funding will not purchase any FHA, VA or USDA loan with a Note date after April 8, 2011.
GMACB Wholesale Operations will not close any FHA (Sponsored Originator) or VA loans after April 8, 2011.

Underwriting Impact

4506-T Processing: If the 4506-T cannot be processed by the IRS, personal income tax returns must be provided in lieu of the processed tax transcript based on the number of years required by AUS or by the Client Guide for manual or Jumbo underwriting. If a 2010 income tax return is provided, a 2009 income tax return must also be included. Signing the 4506-T at application and closing remains a GMACB policy. This applies to all products.
Social Security Number Validation: For Fannie Mae loans, if Desktop Originator (DO) or Desktop Underwriter (DU) require validation of the borrower(s) social security number with the Social Security Administration, the loan file must contain evidence of the validation.
Flood Insurance: It may be difficult to obtain flood insurance through FEMA during this period. Please note that GMACB requires evidence of flood insurance at time of purchase or closing.

GMACB will continue to provide updates regarding the government entities and the system and operational dependencies pertaining to the government shutdown.