How will Governement Shutdown Affect the Mortgage Industry?

Filed under: Market Comentary

shut downThe possibility of a government shutdown as of October 1, 2013 could definitely have ramifications in the mortgage industry.

Terry Clemans, executive director of the National Consumer Reporting Association (NCRA) was recently quoted as saying, “With such a huge amount of mortgage money coming from the GSEs and HUD, basically our government, any time you start to talk shut downs, interruption of work schedules, and the potential for lower U.S. government credit ratings, there is no way to avoid this from impacting our industry while it is recovering.”

Even though no one is exactly sure which agencies could possibly shutdown, many experts are pointing at FHA, FHFA and others as the most likely to be impacted. A government shutdown involving FHA would have a significant impact on the housing market at a time when home buying has been increasing.

And, if the federal government actually shuts down, the FHA will not be insuring any new loans. Banks, however, will still be able to make FHA loans, but they will have to fund and hold onto those loans until the government “re-opens” for business.

A few years ago, a spokesman for Wells Fargo, the nation’s largest mortgage originator, said that Wells Fargo “would expect to be able to take applications and close loans provided that a shutdown doesn’t continue for any extended period.

Banks would also have to decide how they would actually treat each FHA eligible loan from correspondent and warehouse channels, where banks buy loans from smaller originators.

Don Frommeyer, president of NAMB, the Association of Mortgage Professionals, said, “With a shutdown, lending isn’t going to stop. The main problem would be for military personnel, who could be affected, in the sense that they wouldn’t be getting paid. We also don’t know if rates are going to be affected because the market often responds to what the government does.”

And John H.P. Hudson, vice president of regulatory affairs for Premier Nationwide Lending, said, “Housing will go on, the GSEs most likely won’t be impacted. Processing could see a major slowdown, if the IRS is affected by the potential shutdown, it’ll be difficult to process 4506 tax returns without the IRS. The Federal Reserve and the CFPB are both outside government budgeting, so they won’t be shutting down.”

Whatever the case may be, a government shutdown next week will definitely affect the housing and mortgage industry in some way; however, no one is exactly sure to what degree is will be affected.


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