Housing Market: Beginning of an Apocalypse?

PATRICIA, well I’m pretty sure it’s not the beginning of the Apocalypse, and the lights will stay on, BUT if you are in the process of buying a home, you need to be aware of a few potential impacts - some could put the brakes on your transaction completely.

Here’s a bullet-point summary that you can scan quickly to determine if you might have an issue:
 

MOST IMPACTFUL:

• The National Flood Insurance Program’s reauthorization runs out on October 1^st
  • If your transaction requires Flood Insurance, YOU CANNOT CLOSE – Agents need to be ready with Contract Extensions
  • New policies can’t be issued
  • Existing policies can’t be renewed or modified during the lapse period. If you have a current policy, CHECK THE EXPIRATION DATE.
  • Existing Policies will remain in effect.
  • DON’T FORGET, If you are buying a home that DOESN’T require flood insurance, but the home you’re selling DOES, and your new home purchase is contingent on selling your current home first, then you may have an issue. Communicate with your Sellers right away.
  • Private Flood insurance is NOT impacted by this, and it IS an option in lieu of FEMA policies.  Explore Private Insurance options now, if you are affected.

MODERATELY IMPACTFUL – Expect potential delays

As you know, Lenders are required to corroborate or validate through third party service providers, information provided by or about transaction parties.  There’s anywhere from 5-10 services that need to be ordered.  Some of these services are ordered on Government serviced platforms:

• Social Security & VA Benefits income and identity verifications
  • Benefits will be paid as usual but Social Security Administration IS migrating over to a paperless payment service
  • VA disability and retirement benefits will be paid as scheduled
  • Verification of benefits and related services could be delayed due to employee furloughs.
  • Verification of identification documents could be delayed.

• Federal Employees – Many are being furloughed or working without pay.
  • Non-essential employees are (for our purposes until further clarification is issued) unemployed.
  • Essential Employees – must work but won’t rec’v pay till the shutdown ends
  • Back-Pay is guaranteed, but future employment may not be, due to pending lay-offs

• Government Provided Services – expect delays
  • IRS – Tax Transcripts and Income verification services
  • Processing of Tax Returns – verification of receipt of Tax Returns might be delayed and many taxpayers wait till the last deadling to file. But I’m SURE they’ll process your tax payments...

• USDA – Rural Housing Loan Programs – still waiting for clarification
  • The Direct Program – since this program is administered AND processed by government employees, this service has the highest potential for delays.
  • The Guaranteed Program – since the services provided for these programs are mostly provided by Lenders, this may be impacted but to a lesser extent

• VA/FHA Loan Processing – Likely will continue but expect delays due to a reduction in Staff
  • Appraisal Reviews will continue but expect delays
  • Case numbers will be issued, but expect delays, and if there are unique issues that require additional manual processing, expect longer delays.

IMPACT NOT FULLY KNOWN and other considerations – Expect delays

• Bankruptcy Verification and Foreclosure proceedings
• Status and Verification of Tax Liens
• Review your transaction for scheduled closed dates and be prepared to negotiate contract extensions
• If your client is a Federal Employee, ask about their status
• Consider other eligible sources for your Verifications of Information services – speak with an underwriter
• Watch your Rate Locks. There is a cost associated with Rate Lock Extensions.  For borrowers, if you are in danger of having to extend your lock, expect to see a new Closing Disclosure with the Lock Extension Fee added.
• Ask about your Earnest money BEFORE your Financing Approval Period expires. You CAN lose your earnest money

Ultimately, be aware of how you are personally impacted, stay on top of the status of your transaction, and be mindful of the variables in your transaction that could be impacted by this shutdown.

And remember, TIME IS RARELY ON OUR SIDE IN THE LENDING BUSINESS – time means guideline changes, rate changes, changes in a borrower’s credit/income/asset/employment profile, loan program changes, lock extensions, contract expirations, loss of earnest money, etc.  Nothing good happens with time in this business. 

Best of luck to those of you impacted by the Shutdown.

Jay