Friday, 25 October 2013 13:28

Paul Abreu in the Wall Street Journal on the Mortgage Market

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"Mortgage Market Surviving Government Shutdown For Now"

Some lenders are reporting examples of mortgage closings that are being delayed by the federal shutdown, and problems could mount if the shutdown continues. But for now, the impact of the shutdown has been fairly limited, say industry executives.

"Over the first few days and today, it's relatively business as usual," said David Stevens, chief executive of the Mortgage Bankers Association, in an interview Wednesday on WSJ Live. "As the days mount on lenders are going to be less and less willing adding an ever mounting pile of risk on their balance sheets."

What are the main ways in which the shutdown could slow housing?

First, the shutdown means that hundreds of thousands of federal employees have been furloughed. Lenders are unlikely to approve loans for borrowers who are furloughed unless they can qualify for the loan without their government salary.

Second, the shutdown (and the more recent brinksmanship over the debt ceiling) could undermine consumer confidence, hurting housing demand. Of course, this aspect of the shutdown will be harder to quantify and it won't be decipherable from official housing statistics for several weeks.

Third, mortgage processing is more difficult for some loans. Lenders generally require borrowers to sign a form processed by the Internal Revenue Service so that they can verify incomes. The IRS isn't currently processing those forms, which means lenders have to decide whether they're willing to process loans without them.

Concerns over form-related issues appear to have been overblown because many mortgage investors have temporarily suspended the need for such forms, said Alex Stenback, a mortgage banker with Alerus Mortgage in Minnetonka, Minn.

"Most of the loans that are closing next week, they would have already had that information in," said Paul Abreu, a lawyer who handles real estate closings in Norton, Mass. He has five loans that are closing next week, none of which have been delayed by the shutdown, while purchase-and-sale agreements that are under review this week won't close until November.

The Federal Housing Administration is still insuring mortgages, though it is operating with a reduced staff, which means loans that need extra attention may be delayed until the government reopens. The Department of Agriculture, meanwhile, isn't approving loans for its rural lending program, which means loans that didn't close before Oct. 1 are on ice until the government reopens. While overall mortgage applications were up last week from the prior week, according to the Mortgage Bankers Association, applications for government-backed loans declined.

"There's a ripple effect," said Mr. Stenback. "The longer this drags on, you'll start to see more and more anecdotal stories about closings that haven't happened. But those are second- and third-order effects in many cases."

View the original article here

Last modified on Friday, 25 October 2013 13:37

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