Could the pending government shut down affect housing?
The simple answer is yes. However, the depth of the impact will depend on the length of the shut down and what guidance is released. A short shut down will have a very minor impact, but a month long shut down would have significant impact. The last significant shut down occurred in 1995 for 5 days, followed by a 21 day shut down from December 1995 to January 1996.
There are 3 main types of loans and the government's role in each is different (FHA, VA, and Conventional). To keep it simple, the 2 loans that are guaranteed directly by the government are FHA and VA. The media is somewhat misleading as the government's direct role in these types of loans is now automated via the internet, pretty much until after settlement. So this allows banks who choose to do so to continue originating and closing these loans without any change in normal operating procedure - even if the government was shut down. However, some banks may take the stance that with a government shut down they don't want to hold take a risk that the government guarantee offered by VA and FHA. Personally, I think it will be business as usual if the shut down is short (~1 week).
During the 21 day shut down in 1995 HUD issued the following bulletin which basically allowed banks to continue issuing FHA loans without any of the items that normally require government interaction (all of these are now automated via the internet), HUD even waived their late fee for the transfer of the FHA upfront MIP.
Here are a few bullets of things that I think will be impacted no matter what during a government shutdown:
- Veterns looking for VA loans may run into problems obtaining a certificate of eligibility if they are unable to obtain it through the web.
- Tax Transcripts are required for every loan to go through underwriting, this process is normally automated via an online interface via a 3rd party and then to the IRS, but there is a large potential for problems here (this would impact all 3 types of loans).
- Employment verification is also required on every file (this is usually a phone call to HR), however, verifying that status of borrowers with government jobs will be impossible.
- Obtaining paystubs from government employees may be difficult.
- Borrowers who haven't filed their 2010 taxes yet and are planning on using their tax refund to assist with down payment will likely have to delay purchasing or writing a contract a little longer.
- Mortgage rates will likely be significantly impacted.
In summary, everything should basically be business as usual for a short shut down. Anything longer should still be OK assuming all of the computer systems are functioning properly OR each agency releases guidance on how to proceed. A long term shut down will have a noticeable impact.
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