As of this writing, the government shutdown is ongoing and has surpassed the longest in history. Though only a partial shutdown, the influence on banks, credit unions and mortgage lenders across the country is slowly starting to surface. While the consequences of a shutdown are more comprehensive than the few items I will account for in this article, these have a considerable impact on the timing or availability of mortgage loans at this time.
Small Business Administration Loans (SBA) are being hindered as the agency is unable to process and approve loan applications promptly. While the SBA doesn’t lend money directly to small business owners, the agency works with lenders to provide loans to small businesses through defining guidelines for loans made by its partnering banks, community development organizations, and lending institutions. The current shutdown is creating a backlog that is limiting new funding or pushing small businesses to costlier alternative financing.
FHA loans are government-backed mortgages insured by the Federal Housing Administration or “FHA.” FHA home loans are popular with first-time homebuyers as they require lower minimum credit scores and down payments than many conventional loans. According to National Mortgage News, the Federal Housing Administration has continued to process government-backed loans during the shutdown, but since only a fraction of the mortgage insurance agency is at work, a paperwork backlog has built up and is expected to grow as the shutdown goes on.
In addition, the FHA has stopped assisting financial institutions in the underwriting of FHA loans. This is causing delays for smaller banks, credit unions and brokers that don’t have authorized “in-house” underwriting. Fortunately, direct mortgage lenders, like Approved Funding have direct FHA endorsements and can underwrite these loans without requiring prior approval from the FHA.
For most bank loans, one of the necessary procedures that a bank does for quality control before a loan closing is the review of an individual’s tax returns (taxable income) as reported to the IRS. Through the IRS “4506” form that is signed by most applicants when applying for a mortgage, creditors can confirm the income that a borrower is claiming. Luckily, after intense lobbying by the banking industry, the Treasury Department recently restarted the program by bringing back some of the clerks who are instrumental in processing these confirmations.
That said, during a “normal” functioning IRS office, almost 20% of the 4506s submitted to the IRS are rejected for incomplete or illegible information. You can imagine what that backlog must be now that there are a fraction of the people begrudgingly doing the necessary work to confirm income numbers. Again, fortunately for lenders such as Approved Funding that can use alternative verification sources other than the IRS, loans can continue to be approved and confirmed without delay or issue.
The recommendation here for anyone in the process of a mortgage, or about to begin a mortgage application is to be in proactive contact with your lender to see how this shutdown will impact your loan approval and closing. Sometimes banks will be able to issue a loan approval “subject to these verifications,” but without knowing when the shutdown will end, there is no assurance that a loan will be handled on time. Similarly, if you are experiencing delays or procrastination by your loan officer, this might be a sign that your loan application is affected.
If you feel that you are in any of these categories where your loan might be impacted, feel free to reach out to me for a no-obligation consultation and advise on how you can try to successfully navigate through your current predicament, or for potential alternatives for your situation. Safe travels to anyone navigating their loan through these challenging times and to those leaving for “Winter Break!”
A shout out and Happy Birthday to Gitty Eisner, Adena Goldman, Dena Kaye, Yossi Kaufman, and Zohar Zamir.
By Shmuel Shayowitz
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected]
