The government shutdown officially started this week, and while the closed or low-operating government offices may not overtly impact most Americans, mortgage applications look to be negatively affected, which in turn may have pervasive changes to and consequences for the housing market.
According to a report from CBS, the IRS’ closing prevents lenders from verifying borrowers’ tax information. Specifically, after borrowers provide tax documents, the IRS ordinarily gives verification of employment and 4506-T transcripts, and with the shutdown, lenders are putting all applications on hold, still sending requests and waiting, or looking for alternatives.
The IRS is expected to have an immense backlog of requests that could slow down the process even once the shutdown finishes.
As CBS details, some lenders have resorted to verifying tax documents through older methods, while others designated as FHA underwriters continue to process only FHA loans.
Regarding the nearly immediate impact the shutdown has on mortgage industry and the housing market, Frommeyer, president of the National Association of Mortgage Brokers, said in a statement this week: “Without access to tax transcripts and relevant information that must be verified by these agencies, it may not be possible to complete the loan verification process. Thus, the lenders working through the shutdown may come to a standstill while processing loans.”
Nevertheless, applications make up just one aspect that’s expected to be affected. CNBC pointed out that lenders may further experience issues verifying social security numbers, while government workers likely will experience problems proving employment.
At the same time, the shutdown’s start has potential to change the housing market. Borrowers with delayed applications – either waiting on the IRS or canceled entirely – will be shut from the present’s ideal rates, while delays may discourage potential homebuyers, causing a lull in, if not a complete reversal of, the upward trend experienced during 2013.