RE/MAX Alliance Group is typically a hive of activity. Buyers and sellers coming in to sign contracts. Sellers meeting with their agents to discuss their recent offer. But recently all that has changed. “It’s stopped cold right now,” said Troy Reeves, The owner of RE/MAX Alliance Group “The Premiere Office”. “I’m dumbfounded.” The government closure that has dragged on for more than two weeks is beginning to weigh on one of the most important parts of the U.S. economy — the housing market.
Its not just that prospective buyers and sellers are worried about the economy, the shutdown is making it nearly impossible to secure a loan. Housing lenders rely on a variety of government data, such as verification of borrowers’ income, which are unavailable with the partial closure of the Internal Revenue Service and other agencies. The shutdown is delaying loans around the country, and some experts warn that home lending could be even more severely disrupted if the political stalemate in Washington persists much longer.
The housing recover is already fragile and the longer the shutdown persists the more momentum will be taken out of the recovery. Troy Reeves said it best “The longer we’re shut down, the more it’ll negatively affect housing.”
The biggest effect so far has been on non-conventional loans. Many FHA-backed mortgages and property improvement loans have run into trouble. So have home loans in rural areas that are guaranteed by the U.S. Department of Agriculture.
Most providers are declining to write jumbo loans without IRS tax transcripts. Jumbos are loans that are too big to be backed by housing finance giants Fannie Mae and Freddie Mac or by the Federal Housing Administration. The availability of FHA loans, a key source of lending throughout Arizona, has been threatened because most agency workers have been furloughed.
As for income verification, any lender that is able to write mortgages is probably doing so without getting tax returns from the IRS. Instead, they have the borrowers show them the returns, which they plan to confirm with the IRS when the agency fully reopens. If a broker is not willing to take that risk it is nearly impossible to get a loan put together.
For the time being, banks are funding deals themselves. They can’t sell the loans to Fannie and Freddie, as they normally do. Lenders run the risk of being stuck with a bad loan if the borrowers lie about their income. If a loan turns out to be absolute fraud, then the brokerage will own the loan without any help.
If you need help navigating the sale or purchase of a home during the shutdown contact The Reeves Team to help you through the process.
Have you had any problems buying or selling a home during the government shutdown? Or have you decided to wait it out all together? Let us know in the comment section below.