Prolonged U.S. Government Shutdown Could Delay Mortgage ClosingsClea Benson
A prolonged U.S. government shutdown would mean some home loans won’t be completed because lenders won’t be able to verify borrowers’ income and other data with the Internal Revenue Service and the Social Security Administration, according to mortgage industry participants.
Fannie Mae and Freddie Mac require proof of borrowers’ income for the mortgages they buy and package into securities and direct verification from the IRS is considered the safest way to do it, Pete Mills, senior vice president of the Mortgage Bankers Association, said today.
“If we go beyond a week, it’ll start to get dicey, particularly for small lenders,” Mills said in a telephone interview. Alternative methods, such as calling a borrowers’ employer, would leave banks open to the risk that they will have to repurchase loans from the companies, he said.
Mortgage Network Inc. planned for the shutdown and ordered government documents for closings currently in its pipeline, said Brian Koss, executive vice president of the Danvers, Massachusetts-based retail lender. Delays could begin to happen as soon as next week, he said.
“It stops our ability to have the best execution,” Koss said in a telephone interview. “It’s a place we don’t like to be.”