What a government shutdown means for real estate

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This article was originally published in The Galveston County Daily News on 1/12 as part of my weekly 2019 column.

Although as of midnight, Dec. 21, 2018, the president and Congress were unable to agree on a continuing resolution to fund the federal government, I've hoped that writing this column would never be appropriate. I expected, like most people, that our government shutdown would be over quickly. So, rather than write the column about property taxes as I had planned, here we go:

What does the current government shutdown mean to the real estate industry and home buyers?
With some 800,000 government employees, along with thousands more contractors and contract laborers unable to work and collect paychecks, there will be those whose mortgages or rent go unpaid. That will, in turn, cost lenders and landlords as they are not being paid either. With 40 percent of Americans, according to the Federal Reserve Board, unable to handle a $400 emergency, living paycheck to paycheck is closer to the norm than the fringes.

But you’re not a landlord or a lender, you say. Well, loans will also become more challenging to get. Some lenders and related entities are currently unaffected. The Federal Housing Administration (FHA) will continue endorsing new loans in the Single Family Mortgage Loan Program and will maintain operations, including paying claims and collecting premiums. Do expect delays with processing FHA, as they are working with seriously reduced staffing.

If you are planning a purchase using a loan product from the U.S. Department of Agriculture (USDA), you may want to look around for another lender as USDA will not be issuing new rural housing Guaranteed or Direct Loans and scheduled closings will not occur.

Government-sponsored enterprises (Fannie Mae and Freddie Mac) should have normal operations. They have revised their loan purchase rules and will waive the need for tax transcripts from the IRS as long as the appropriate request, Form 4506T has been completed.

It gets a little trickier here. The Internal Revenue Service has recently announced that income tax forms will be processed and refunds issued, but it is not yet clear if it will process other forms during the shutdown including that 4506T just mentioned, the request for tax return transcripts. The FHA and VA are not requiring the transcripts, but many lenders require them for many kinds of loans. Some loan originators have adopted revised requirements which allow for processing closings with income verification to follow. But not all. Ask your lender to keep you up to date on issues relating to the shutdown.

Most frightening to me was the initial suspension of National Flood Insurance Programs. The National Association of Realtors immediately reacted and worked with the White House and Congress to clarify the shutdown does not affect the sale or renewal of flood insurance policies or the payment of claims on existing policies at this time.

The longer the shutdown continues, the more likely something will cause services to stop lending at all.
This can trickle down, affecting rate locks, approvals, and yes, closings.

A buyer who may have been excited and hurrying to purchase a house may not feel the same way in two or three months. A seller needing to move may be stuck in place just waiting for a loan approval.

The real estate market, in general can adjust for a short shutdown but a longer one can create more instability. Mortgage interest rates may be affected. Higher rates can slow sales. Higher interest can affect debt to income ratios and the number of loans being approved. Subsequently, demand can be affected and could cause a drop in values and pricing.

Until the shutdown is ended, buyers and sellers should stay in contact with their lenders and stay up to date as information comes out about various programs. Ask your Galveston Realtor.