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government shutdown affect on real estate

I am sure you have seen all the news coverage about the government shutdown. It angers me that the idiots in Washington can’t work together to help America. I guess once this shutdown starts to hurt Wall Street, the banks, big business and the super rich, then maybe we will see some progress.

I am sure that you have you own views on which side is right. I am of the opinion that 2 wrongs don’t make a right. Let’s leave the political debates for the morons that actually think either party cares about the average American. So let’s just focus on 2 things:

How the Government Shutdown Will Affect the Economy

The first problem this shutdown is going to cause is that people are sitting at home today instead of working. Which is going to make it hard for them to pay their bills. Including their mortgages!

I read an article that said the shutdown will cost $300 million a day in lost economic output. How can we put a price on the stress and hardship this is putting on some good honest people today?

The longer this shutdown goes on, the greater it’s impact on consumer and business confidence. With the economy still in a fragile state, I don’t think this good. Especially since we have the looming battle over the debt ceiling in just a few weeks.

The impact on unemployment levels and the economy will not be good. Since a healthy economy and real estate market go hand in hand, this is distressing to say the least!

How the Government Shutdown Will Affect Real Estate

Beside the impact on the economy, we also have to realize that shutting down some federal government agencies will hurt housing. If the government shutdown lasts several weeks or more, it will have a significant impact on housing. Let’s look at some of the problems:

GSE Mortgages

At first, word was that lending by FHA would stop. It will get slower but we can breathe a sigh of relief that it will not come to a screeching halt. Since about 90% of the residential real estate market depends on the GSEs for mortgages, it looked pretty bleak over the weekend.

Then HUD cleared things up in their Contingency Plan. HUD’s Contingency Plan stated that FHA will continue to endorse new loans in the Single Family Mortgage Loan Program. Multi-family is another story though.

But for now, FHA is still making residential, single family mortgages.

Good news that Fannie Mae and Freddie Mac will continue operating as normal. This is because Fannie and Freddie don’t rely on appropriated funds. Instead they get their fees from the lenders.

You just have to expect it to take longer if the buyer is using a FHA mortgage.

VA Mortgages

VA lending is supposed to continue as normal. Again you should expect delays. I am sure that the longer the shutdown drags out, the higher the possibility that this could change.

USDA Mortgages

USDA is another story since lenders won’t receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. If the USDA has not issued a conditional commitment, the buyer is screwed.

Also once USDA runs out of money, they won’t be making any mortgages. No idea when this might happen. Or if this is something to worry about at this time.

I bet you never thought you would be sad the IRS had shut down…

The real big problem though is that some lenders require borrowers to file IRS form 4506-T. This form is used to verify the applicant’s income and Social Security number. With the IRS shut down, this could result in major delays in some mortgage application approvals.

The Take Away

Buyers should discuss all of this with their lender. They are going to have to see if they are still going to be able to meet contract deadlines.

Sellers, you will have to consider a buyer’s choice of mortgage when considering an offer even more than before. If you are already under contract, then it may mean your sale will be delayed.

Everyone needs to remember NOT to get mad at the buyer, the mortgage officer or the agents.

Get mad at the idiots in Washington.

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