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There is much speculation on the impact that the current government shutdown will have on home buyers hoping to secure a mortgage. In the case of mortgage lending, the impact will depend on many things including the length of the shutdown, the current status of the loan, the borrower profile, and the lender’s modified guidelines during the shutdown period.
While all except one (USDA) governmental agency involved in housing finance remain open, the shutdown does impact various functions that are part of the financing process. Below is an overview of the functions being impacted:
1. Request for Tax Transcripts (4506T)
Most lenders require that when using a borrower’s tax returns to support income, the tax returns are verified by obtaining the tax transcripts from the IRS. The form used to request the transcripts is the 4506T; therefore, you may hear the process overall referred to as the 4506T. As part of the shutdown, the IRS has indicated that it will not be processing requests for transcripts and therefore, depending upon the lender, closings may be delayed until tax transcripts can be obtained.
2. Social Security Number Verification
In the course of processing a loan, in certain instances a credit alert will appear requesting that the borrower’s Social Security Number (“SSN”) be verified. As part of the shutdown the Social Security Department has indicated that it will not be processing SSN verification requests. Most lenders require that SSN credit alerts be cleared prior to closing and the inability to obtain SSN verifications may delay closings.
3. Verification of Employment (VOE) for Government Employees
If a borrower is employed by the Federal Government, a written VOE will be required prior to closing. If the VOE indicates the borrower is furloughed the loan may not be able to close.
4. USDA Underwriting
For USDA Rural Housing loans, a lender must obtain a Conditional Approval from the USDA prior to closing. As part of the shutdown, the USDA has ceased issuing Conditional Approvals, and therefore, any new applications, or loans in process that have not been issued a conditional approval, may experience a delay in closing.
It’s important to stress that this is a fluid situation, and unlike prior shutdowns, given the amount of cross referencing that is done as part of the loan process, lenders are highly reliant on verifying information from various federal agencies, like the IRS. If you are currently engaged in the home buying process, you are strongly encouraged to contact your mortgage lender to discuss how this shutdown may impact your ability to move forward.
Erik Hand is the president of Windermere Mortgage Services. An accomplished mortgage lending executive, Erik has over twenty years of experience in the industry and is a former board member of the Seattle Mortgage Bankers Association.
