Germaine Devane of Vinings has spent the last four months looking for a new home in Acworth to get his son in a better school district.
He fears the government shutdown, however, may jeopardize his chances of sealing a deal and getting a favorable interest rate on his mortgage loan. His concerns appear to be valid.
Federal agencies that are key to a buyer’s ability to secure a home loan, and one at reasonable terms, are in the thick of the government shutdown, even if some of their operations continue with limited staffing. As a result, lenders dependent on the agencies for information on applicants – from tax returns to Social Security numbers - will find themselves in a holding pattern, with customers paying the ultimate price.
“My biggest fear is not being able to secure a loan,” Devane said. “Right now, I’m kind of stuck.”
Like many prospective buyers, Devane must give a lender permission to get a copy of his tax transcript sent directly from the Internal Revenue Service. It’s a requirement for loans involving the Federal Housing Administration and other agencies, including the Federal National Mortgage Association, Freddie Mac, the Veterans Administration and Agriculture Department.
The problem is, the IRS won’t be processing the Form 4506-T requests during the shutdown. The agency projects 90 percent of its employees (almost 86,000) are being furloughed and those remaining will be involved in protecting “life and property.” The Social Security Administration also said it will not be verifying Social Security numbers.
Other agencies also will cause a slowdown in loan processing. The FHA, which insures mortgage loans, said it will continue to endorse single-family loans but will have only a limited staff to do the work. The FHA covers the loan in the event the homebuyer defaults.
Ennis Antoine, an associate broker at Better Homes and Gardens Real Estate Metro Brokers, said the shutdown puts buyers at a disadvantage. Those who have locked in a favorable loan rate, for example, could lose it if the shutdown extends beyond the usual 45- to 60-day lock-in period. Buyers then could face a new higher rate. The average rate on a 30-year fixed mortgage in metro Atlanta loan was 4.33 percent last week, but that is up from 3.76 percent at the start of the year, according to Bankrate.com.
In a market where the available supply of homes is tight, antsy sellers could decide to go with another buyer who has cash in hand, for example well-financed investors.
Eugene James, a housing trends researcher at Metrostudy, said the stalled loan process will not keep home prices from rising, another blow to homebuyers. Many buyers who have sat on the fence are trying to ink deals as prices continue to rise. The median price for an existing home for sale in the third quarter was $165,000, compared with $125,000 a year ago, James said.
A large share of the homes are being snatched up by investors, not people like Devane.
“What it means is that if you are my buyer and you are trying to get your loan approved, this [shutdown] will delay the process,” said Antoine, president-elect of the Atlanta Board of Realtors. “Unless you are getting a non-conforming, high-risk loan, you are going to be affected.”
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