U.S. Government Shutdown Threatening Housing Recovery

Source: Bloomberg

Washington and the country are bracing for a prolonged government shutdown – which went into effect
October 1 – as Congressional Republicans’ continue to exert pressure over the nation’s health care law.
Republicans’ are seeking to defund or delay the Affordable Care Act, albeit at the expense of the
country’s economic recovery, as an impasse over funding the government takes hold at the Capitol. It
remains to be seen whether the government shutdown will be short-lived, but it is expected to dampen the
housing recovery and disrupt mortgage processing through delays.

Making sense of the story:

  • With the IRS closed due to the shutdown, lenders will not be able to verify tax returns as part of a borrower’s loan application. It is expected that loan applications will be stalled since the IRS will not process any forms, including tax return transcripts.
  • There will also be significant staff reductions at the Federal Housing Administration, which handles about 15 percent of the mortgage market. Notably, the FHA’s ability to police lenders and loan quality is likely to also be impacted by the shutdown.
  • The government shutdown is not expected to have a significant impact on mortgage investors in the near term, but that being said, Congress has given the public and investors little reason to believe it will come to a resolution as soon as possible for the sake of the economy.
  • The government shutdown is not the only issue at stake because if it remains unresolved in the next few weeks, it will take the country into another crisis: The expiration of federal borrowing authority. Therefore, negotiations will be further complicated if raising the federal debt limit is added to the debate.
  •  The shutdown is the first partial closure of the government in nearly 18 years, and has forced 800,000 federal employees out of work indefinitely and the closure of federal offices.
  • Experts fear the shutdown will spook potential buyers since uncertainty in the economy directly impacts the consumer confidence that is key to the housing recovery.

Read the full story here.