With the large number of agencies and employees affected by the current shutdown, how does this impact the title and real estate industries? On the surface, the shutdown has had a clear effect on many agencies, including Homeland Security, NASA, the Federal Communications Commission, and more. Over 800,000 government employees have been affected by this, with around 380,000 not allowed to work at all.
Perhaps surprisingly, there are a number of agencies that directly impact the real estate industry and, by association, can be felt by title companies nationwide. Specifically, the shutdown of FEMA, FHA, USDA, SBA, and the IRS all can be tied back to slowed real estate business.
Flood Insurance Slowdown
In the days immediately following the shutdown, the Federal Emergency Management Agency (FEMA) stopped issuing new flood insurance policies. While it may not seem like too big of an issue, many closings cannot be completed without a flood insurance policy. It’s estimated that 40,000 closings could be put on hold or canceled altogether for each month that policies are unable to be issued. Luckily, as of December 28th and under strong pressure from the American Land Title Association, Mortgage Bankers Association, National Association of Realtors, and other organizations, FEMA has restarted issuing flood insurance policies.
No More Loans
The Federal Housing Administration (FHA), United States Department of Agriculture (USDA), and Small Business Administration (SBA) all issue mortgage loans, even if it’s not their main organizational objective.
But due to the shutdown, these agencies are not funded and thus cannot issue or endorse new mortgage loans. The USDA issues around 10,000 loans per month and the SBA adds more to that total. Without funding, a large number of people are unable to receive loans. If a borrower's interest rate lock expires and rates increase, it's possible that she may no longer qualify once the shutdown ends.
Fortunately for the FHA, the Housing of Urban Development planned for another government shutdown in its contingency plan from 2018, which provides a way for the FHA to endorse new Single Family Standard FHA loans. However, not all loan types are covered by this contingency, including reverse mortgages (HECMs) and FHA Multi-Family offerings.
What about the IRS?
One big snag being felt throughout a number of closings during a shutdown deals with the IRS. Since the IRS is not funded, they’ve stopped processing requests for income tax transcripts (forms 4506 and 4506-T). Those forms are requested by Fannie Mae and Freddie Mac to originate a mortgage, though tax forms aren’t the only way to successfully process the forms.
What may be more impactful, though, is the fact that the IRS can no longer process demands for tax liens. In short, any transaction where the buyer or seller has an IRS tax lien cannot close. If tax liens are not able to be processed, title cannot be cleared, possibly forcing sellers to re-list their homes.
Ultimately, all of these hold-ups and cancellations can slow down business for title companies. “During the last shutdown of 2013, we were affected badly,” said Mo Choumil of ATG Title. “Our business dropped by almost 50%. We are definitely lucky this time around.”
All in all, a government shutdown can (and in many cases does) have an impact on the real estate industry. It’s even more important now for title companies and real estate professionals alike to keep an eye on government agency availability so they can better understand what lies ahead for their businesses during the shutdown.
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