It’s been several days now of the government shutdown, and it’s becoming more clear how it could potentially impact the housing market.
The government shutdown went into effect at midnight on Oct. 1, and ever since then, there has been considerable speculation on how the shutdown could impact the nation’s fledgling economic recovery.
With the shutdown a few days old, though, more and more analysis have been popping up regarding the shutdown and the housing market, and how, as we covered more than a week ago, key facets of the housing recovery could be affected by a lingering shutdown.
So with the shutdown now a few days old, here are four key concepts to keep in mind regarding the housing market:
1. The Government’s Footprint – Though Fannie Mae and Freddie Mac are not affected by the shutdown (we can thank their quasi-private stature for that), the FHA has been affected, and in noticeable ways. Sure, the FHA is still technically operational, but the shutdown furloughed a significant number of federal employees within HUD’s Office of Housing, which the FHA is a part of; in fact, according to The Wall Street Journal, just 64 of the office’s 2,972 employees are currently on the job.
2. That Magical 4506-T – Form 4506-T, which the IRS issues to verify a taxpayer’s income, is a lynchpin in today’s mortgage process and the most reliable way for banks to ensure that borrowers can indeed afford their mortgage. With the shutdown, though, the IRS is no longer open, and is therefore not issuing any new 4506-T forms.
The good news is, it’s not armageddon, at least not immediately. For loans currently approaching the closing table, chances are quite high that the lender requested the 4506-T form weeks ago, aka long before the IRS was shut down. Wells Fargo, for instance, the nation’s largest granter of residential mortgages, told the Journal that it does not anticipate any issues processing existing applications.
3. Dragging Along – Should the shutdown drag on for more than two weeks, though – which seems increasingly likely – then the mortgage markets could be impacted, and not just because of lacking 4506-T forms for new mortgages. For instance, the FHA could lose its funding authority and stop guaranteeing loans (the FHA currently backs roughly a quarter of all new mortgages); or furloughed employees, who are not receiving any pay, could have trouble paying their mortgages.
4. The Pending Tsunami – All of those aforementioned hurdles, though, are small potatoes compared to the pending tsunami of the U.S. debt ceiling. Should the government fail to raise the nation’s debt ceiling – and should the nation, as a result, default on its debt – the end result would, in the words of a new report just issued by the Treasury Department, “unprecedented,” with the “potential to be catastrophic.”
So mark your calendars – the government is set to default on its debt on Oct. 17.