2013 Purchase Markets News » Shutdown prompts temporary mortgage changes

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Shutdown prompts temporary mortgage changes

Purchase Markets \  October 9, 2013 11:20 am

Shutdown prompts temporary mortgage changes

"We're issuing this guidance to help ensure the continued smooth operation of the mortgage market during the temporary shutdown of the federal government," said Dave Lowman, executive vice president of single-family business at Freddie Mac. "Today's bulletin is intended to give lenders the certainty to continue approving and delivering new mortgages that meet Freddie Mac guidelines to eligible borrowers, such as federal employees and contractors, during the temporary shutdown."

Guidance outlines
The new guidance allows for lenders to send mortgages to Fannie Mae even if the borrower isn't receiving a paycheck because they are on furlough. While the IRS is closed during the shutdown and unable to process paperwork usually necessary for loan options, borrowers will instead be able to present lenders with their most recent tax transcript forms to be evaluated.

Those affected by the shutdown are also eligible for Fannie Mae's relief policies. Certain private and public sector employees will be granted forbearance from loan payments for three to 12 months due to the temporary shutdown. Forbearance is not allowed to be reported to credit bureaus. The new guidance will help borrowers whose employment is affected by the government shutdown.

"We are also reminding servicers of our forbearance options to assist qualified homeowners with Freddie Mac mortgages to minimize the shutdown's impact on our nation's families and communities," Lowman said.

USDA impact
While the FHA had not planned to close its doors during the shutdown, some staff was sent home, increasing loan processing times and making it difficult to obtain reverse mortgages. If the shutdown remains short-lived, it is unlikely there will be a significant impact on FHA loans.

However, the small percentage of loans that come from the USDA have been halted completely. The USDA provides loans to rural borrowers and represent only 1.4 percent of all mortgage loans, about 132,000 per year, according to Bloomberg. Getting its start during the Great Depression, USDA loans allow borrowers to get a mortgage with zero-down payment. While only a small percentage of total mortgage activity, the closure of the USDA has halted all processing and could impact the housing market overall if the shutdown continues to drag on.

"The last thing we need is anything that shakes the confidence in a softly recovering housing market," David Stevens, chief executive officer of the MBA and former head of the FHA, told Bloomberg.


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