Last week, this blog discussed how likely it was for the government shutdown to seriously hinder the nation's housing market. At the time, it wasn't clear how the furloughed federal workers would affect an already struggling and recovering sector. A recent Washington Post article delved deeper into the subject, saying that this event will postpone many mortgage approval decisions.
Specifically, the news source explained that many banks will likely be less willing to make loans—if at all—because they will not have access to certain pieces of information. For example, the Internal Revenue Service, the Social Security Administration, and in many cases, the Federal Housing Administration, all play a role in whether hopeful borrowers get a mortgage loan.
"Major lenders are scrambling to figure out whether they can risk making some loans without the federal paperwork and assessing whether they should require additional documentation from borrowers because the IRS has no one working who can verify income," the Post said.
Mortgage Bankers Association CEO David Stevens told the news source that the problem will only intensify with each day that the government is shut down. Each day is one more that lenders' liability is at risk, he said.
For example, the Post reported that at the FHA, just 64 of the 3,000 full-time staffers were still working. Of those employees, only 30 are responsible for signing off on mortgage insurance for single-family homes.
Financial institutions of all sizes must have a full arsenal of tools available when it comes to making decisions on potential borrowers. Regardless of the shutdown, comprehensive and up-to-date application processing software will be a huge asset in determining creditworthy borrowers.
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