Apart from mortgage rates sliding (4.5% to 4.32%), the biggest market impact of recent news is the government shut down. The shutdown in a micro economic sense has little direct impact on the housing market but from a macro scale, the shutdown has stirred up public uncertainty so much so that many people are not jumping at the lower 30-year-fixed rates.
“Watching the markets, mortgage rates did waver a little but we didn’t see massive movement some expected,” says David Hall, President of Shore Mortgage, a Troy, Mich.-based mortgage services provider. “This shutdown does come at an especially bad time as new home sales and home construction is building back up. More uncertainty is not what we need.”
1) Ironically, the lower rates may be a result of the shutdown. Rates move fluidly with the economy. When banks and lenders see the potential for the market to slow down, they react by lowering rates to increase business. A shut down is a key indicator that the market could slow down.
2) FHA loans. For those waiting for Federal Housing Administration loans, the shutdown means that your wait could last longer than expected. The FHA assigns case numbers to each potential loan and this process has been halted with the shutdown.
3) I.R.S Documents. Similar to FHA loans, mortgage firms are unable to verify a borrower’s income via their tax returns. A 4506 transcript is required by law each to verify each loan.
“One of the biggest impacts to the mortgage market is that the ability to obtain a 4506 and Social Security Number Verification has been halted,” says Jason Auerbach, an LPO manager at New York city-based First Choice Bank/Lending. “The 4506 IRS Transcript is verification from the IRS that the income documentation, specifically tax returns, provided by a client match with what they filed.” Auerbach adds that the 4506 mandate does not impact lenders who are selling loans directly to Fannie Mae so many of the large lenders will see little disruption. However, smaller lenders who sell adjustable rate mortgages to investors may have to halt that lending,” he says.
4) Fannie/Freddie Open(ish). The regulatory side of Fannie and Freddie are up and running as normal. But, with the Social Security Administration due to shutdown, again the verification process of SSN’s needed for mortgage applicants are on hold.
These are all direct crippling impacts the shutdown is having on the real estate market. Each micro example builds into one worrisome macro consequence: a weaker U.S. Housing Market. Buyers and Sellers are losing the confidence slowing gained back over the last six months of real estate recovery. Mortgage rates are falling, but there is no way to seize those deals with the ability to be approved for loans only coming back as ‘we will make progress only five days after the government opens back up.’ The longer the shutdown goes on the more and more the micro impacts with grow to be truly worrisome.