Government shutdown and home loans

By Brian Petersheim at Thursday, October 03, 2013 , in category

Impact of Government Shutdown on Lending

There are several impacts on lending due to the government shutdown. For the most part, lenders will keep operating with business as usual on Conventional, FHA, and VA loans. The biggest impact is that lenders will be unable to order IRS transcripts during the shutdown.

These IRS transcripts are required on every single FHA/VA/Conventional/Jumbo loan (it "proves" that the borrowers tax returns and w2's are legitimate). Most good lenders (including VIP) order these transcripts at the beginning of loan processing so it should not affect any loans currently in process. If the shutdown lasts only a week or even two, this will not be an issue but if the shutdown goes to 3 or 4 weeks it could start to delay closings since a lender will not fund a loan without IRS transcripts.

Borrowers with USDA/Rural loans in process have more to worry about. USDA does their own approval after the lender's underwriter approves the loan. During the shutdown, USDA will not be issuing these approvals. Prior to the shutdown, USDA was running 2 weeks on their approvals. Once the shutdown ends, it will likely take them 2 weeks plus the amount of time that the government was shutdown.

One other potential issue (for all loan types) will be completing a final verification of employment for government employees. Lenders are required to do a final verification of employment for all borrowers within 10 days of closing. During the shutdown, it does not seem likely that lenders will be able complete this verification of employment if the borrower is a government employee