Gov’t Shutdown: Impact on Closings

What does a government shutdown mean for REALTORS? (As of December 21, updated December 26th, 2018)   Since a Continuing Resolution (CR) to fund the federal government was not passed by Congress and signed by the President by midnight on December 21, 2018, a partial shutdown of some government operations has occurred. This partial shutdown includes some federal housing and mortgage programs.  The information below is based on NAR staff review of agency contingency plans for the current shutdown and experience with previous shutdowns.

Flood Insurance:  On December 26th, the Federal Emergency Management Agency issued a new opinion disallowing new or renewal flood insurance policies during the partial shutdown of the federal government. Shannon McGahn, Senior Vice President of Government Affairs for the National Association of Realtors®, issued the following in response to FEMA’s ruling.  Last week, Congress passed legislation to fully reauthorize the NFIP through May. However, today’s surprise FEMA ruling jeopardizes tens of thousands of home sales across America, as NAR estimates up to 40,000 closings are disrupted each month that the NFIP cannot issue flood insurance policies. NAR will continue carefully reviewing this ruling and we remain in communication with Congress and FEMA to remedy the situation as quickly as possible.

FHA Loans:  Federal Housing Administration HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program except for HECM loans. It would not make new commitments in the Multi-family Program during the shutdown.  FHA will maintain operational activities including paying claims and collecting premiums. FHA Contractors managing the REO/HUD Homes portfolio can continue to operate. Some delays with FHA processing may occur due to short staffing.

Internal Revenue Service:  The IRS will close and suspend the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. Some loan originators may adopt revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts.  Make sure you check with your lender!  On loans requiring a Form 4506T Fannie Mae and Freddie Mac may adopt relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.

Government Sponsored Enterprises:  During previous shutdowns, Fannie Mae and Freddie Mac have continued normal operations, similar to their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. Fannie and Freddie may announce relaxed procedures that would permit closings to go forward without federal verification of Social Security numbers and IRS tax transcripts. However, lenders would still have to obtain federal verification of both before the GSE’s will accept loans for purchase. Any relaxed requirements would not apply to loan modification re-financings.

Rural Housing Programs:  The U.S. Department of Agriculture would not issue new rural housing Direct Loans or Guaranteed Loans. Scheduled closings of Direct Loans will not occur. Scheduled closings of Guaranteed Loans without the guarantee previously issued would be closed at the lender’s own risk.

Social Security Administration:  The Social Security Administration will close, but checks will still be processed and distributed. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service would be suspended.