What the Government Shutdown Means to the Mortgage Market

Written By: Glenn Michaels, Op-Ed Writer

If the United States of America government shut down lasts much longer the mortgage market will come to a screeching halt.

Too many federal workers have been furloughed many that impact our business.

The Internal Revenue Service (IRS) will not retrieve any tax records during the shutdown virtually all mortgage loan applications require a signed IRS form 4506 – T and most lenders will not proceed until the tax returns are verified by the IRS. At the present moment the IRS will not act on any IRS 4506 – T received. This action immediately slows down many mortgage applications.

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Mortgage applications that already received verified tax information from the IRS are not in the clear if they are situated in a flood zone.

All insurance brokers, and insurance agents can sell federal flood insurance policies, but all federal flood insurance policies can only be purchased from one federal agency. That agency is called Federal Emergency Management Agency (FEMA). AS of this writing FEMA has announced that they will not place into effect any new flood insurance policies while the federal government is in shutdown mode. Therefore, any property that is situated in mandatory flood insurance flood zone a flood insurance policy cannot be purchased. Now homes that require flood insurance cannot close until a flood insurance policy can be purchased.

What really concerns me is that we are still in hurricane season. (June 1 through November 30). If an area of the United States suffers a loss similar to what occurred last year and the year before from catastrophic hurricanes what will be the government’s response. Right now with many federal government workers furloughed what kind of response can the government mount?

Mortgage Servicers normally maintain an escrow account to pay a borrower’s taxes and insurance bills as they come due. There may be an issue with flood insurance renewals while the federal government is in shut down mode.

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If the government shut down goes on for a prolonged period of time the mortgage originations area of the business will be seriously impacted. This will also cause a ripple effect in the real estate market since many mortgage applications will not be able to close until the federal government reopens for business.

The United States Department of Urban Development (HUD) has also placed notices on their web sites what the federal government shutdown is doing to that agency. Many of their services are impacted and many of their serves impact the mortgage and real estate industries.

The last thing the shaky real estate and mortgage industry needs is delays in closing loans or holding up closings completely.

The economic loss to our nation and to mortgage and real estate industry is staggering and hopefully in the very near future the federal government shutdown will be a thing of the past.

About The Author

Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.