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Government Shutdown Could Slow Housing Recovery
Diana Olick / CNBC / October 1, 2013
The fight may be in Washington, but the effects of the government shutdown will ripple through every neighborhood in America—without a fully functioning government, an already tight mortgage market may become even more prohibitive. It is exactly what the housing recovery does not need.
“This is going to be very disruptive to the mortgage industry and pretty much result in a freeze of the pipeline,” said Craig Strent, CEO of Bethesda, Md.-based Apex Home Loans. “New loans can be taken, but without IRS and Social Security number verifications, [they] will not be able to proceed to closing.”
After getting burned badly in the housing crash, most lenders now check everything on a borrower’s loan application. It has become standard to verify tax returns as a quality control measure, according to Strent. If the IRS is closed, it will not process any forms, including tax return transcripts, so the loan applications will be stalled. For government workers themselves, it’s even worse, because they will likely be unable to verify their employment on a mortgage application.
(Read more: Here comes the DC shutdown: What you need to know)
At the Federal Housing Administration, which represents about 15 percent of the mortgage market, the lights will still be on, but the staff will be reduced.