As the US government shutdown continues into its third week, many American might not even notice. But if you are trying to get a government-backed loan via FHA, USDA or VA, you may notice some hiccups.
For example, people in Ohio who want to get a home with a USDA loan are running into some slowdowns in service. The USDA offers extensive loan programs for people who want to buy homes in rural areas. Much of the land in Ohio is outside major urban centers and may qualify for USDA loans. But some of the loan service in this area has been temporarily furloughed due to the work stoppage in DC. For the mortgage company Equity Resources based in Newark OH, that is a solid hit to their business.
The company reports 10% of its loans are USDA. So, any Ohio borrowers with their company are in a holding pattern until the work stoppage is over.
Other federal loan products, such as FHA loans, are not as affected, and the same with VA loans, but if there are questions about FHA financing in Ohio, it is difficult to get answers.
Mortgage lenders in Ohio also reported there are other irritants with the government shutdown between Republicans and Democrats in Washington. Self employed workers cannot get transcripts from the IRS to verify incomes. This affect their ability to get a home loan. Federal employers who want to get credit or are looking for work may have difficulty as well because there is no one taking their calls.
As for Kansas City, there are also some problems for people who are trying to get USDA home financing. But it is not happening at this time. People who are getting USDA loans in the area are being help up waiting for the final approval from the agency before the loan can close. On the upside, only a small amount of buyers use USDA loans. But still, more than 100,000 homes are closed yearly with USDA mortgages, and some of these could be affected.
According to one lender, it breaks his heart to see what this has done to small town lenders who are focused on USDA mortgages. Closings on these loans have been delayed indefinitely, but some buyers face deadlines that could kill the deal due to their purchase contract data. It is not uncommon for motivated sellers to refuse to extend contracts, and the buyer could be out the money they spend on inspections and appraisals.
One senior loan officer with Northern Mortgage Services, which operates in several states including CT, MA, FL and CA, says some borrowers for USDA loans might even be homeless after the shutdown. If the contract contingency deadlines have not been met, and they canceled their lease to rent a home, they could lose their good faith deposit and have no home in which to live.
Regarding VA loans, the Washington Post reports that a small percentage of VA applicants to get replacement discharge documentation that is needed for a VA certificate of eligibility have gotten delays. But other than that, there have not been major holdups on these loans.
For FHA financing, some offices have seen delays because of staff reductions and a backlog of cases, lenders say, but the impact has been minor to date.
One possible source of problems is that borrowers may not have thought the shut down would happen. Some self employed home buyers may have more conservative underwriting standards.
It can be somewhat of a hassle for borrowers with unusual income profiles or a special situation or quirk in their application when major sources of funding decide to do more underwriting when there is a federal shut down.
The bottom line is that shutdowns do have mortgage victims and the monger the shut down, the more acute the pain can be.