How the Government Shutdown will Effect Financing

How the Government Shutdown will Effect Financing

 

Most Government Sponsored Entities like Fannie Mae and Freddie Mac and VA are operating as normal and continue business as usual. FHA is staffed with limited personnel and trying not to delay closings or have their business deterred but I would watch FHA loans and applications very closely(like you weren’t already) to make sure there is no funny business.

 

The big challenge at the moment for all in the industry is the IRS having its doors closed. On nearly every mortgage loan application borrowers are required to complete the IRS Transcript request form called the 4506-T. This form is sent by the lender to the IRS and they provide the lender with tax transcripts verifying income from tax returns for the previous years requested. This is how the lenders quantify borrowers W-2’s, 1040’s, business income and just about every other possible income from credible tax returns or reported income. The IRS will likely not be processing any 4506-T requests during this shutdown. Depending on the duration of the shutdown, requests may be delayed and there may be a backlog of requests that the IRS will need to process when they do re-open. Additionally the Social Security verifications from the Social Security Administration are not available.

 

In the meantime, EverBank’s policy for this is if tax returns were prepared by a third party, our Processor and/or Underwriter must independently validate the existence of the third party via an internet search and/or obtain verification of the CPA license. If the returns were prepared by an entity such as H&R Block, the office location should be verified. In general EverBank will not suspend loan closings due to the absence of 4506-T validation, however Underwriters still have the responsibility to conduct proper due diligence of the income documentation provided in loan files. Any red flags need to be addressed as thoroughly as possible without the assistance of the tax return transcripts at this time. Significant red flags in a loan file that cannot be addressed or cleared may warrant postponing a closing until a tax return transcript can be obtained from the IRS.

 

In general lenders are hopeful mortgage loans will not be delayed and optimistic the shutdown will not last more than a few weeks. Origination companies, correspondent banks, and warehouse lenders may react differently as they access the risks associated with an extended shutdown. If it does last more than a month we may be in for some rocky times on the mortgage side, for now let’s go with business as usual and be mindful when entering contract with an FHA buyer.

 

Hope this information is helpful and re-assuring.

Thanks, Patrick

 

Patrick Gardner
Mortgage Loan Officer
Office: 415.423.1424
Cell:  510.599.8499
Fax: 415.477.2146
patrick.gardner@everbank.com

 

Everbank.com/pgardner
NMLS ID: 378888

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One Response to “How the Government Shutdown will Effect Financing”

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