The Government Shut Down is Over!!

The Government Shut Down is Over!!

The government shut down is over – “Who Hoo”.  The latest figures are that $600 Million was lost in production and performance for the entire time the government was closed.  I don’t know about you, but it makes me sick to my stomach to think that the citizens of the U.S. pay taxes to a government with little or no accountability to provide services that commensurate with what we pay.  Then, just in case you didn’t hear, the Obamacare website isn’t working properly and it cost more than $400 Million to be created.  Expert coders have reviewed the work on the site and unanimously have stated that the programming is “severely” flawed.  (Please understand I am not making a political statement whatsoever, this craziness happens regardless of which party in power)

With the government functioning again, the economic reports are starting flow out to the public domain however they are slow in coming.  Some of the reports that have come out are listed below:

·         Mortgage rates have declined and with that refinance applications increased 3.0% in the prior week.  Applications for purchases declined 5.0% for the 3^rd straight week in a row.  The belief is that the government uncertainty had buyers sitting on the fence waiting for matters to be resolved.

·         The Housing Market Index which measures builder confidence is not quite as high as it has was in August.  However the readings are still the highest they have been in 10 years.  Once again Washington seems to be to blame for concerns about housing.

·         First Time Jobless Claims came in at 358,000 however the numbers are very skewed.  Between the government shutdown and an information backlog out of California the numbers are not considered to be very accurate for this week’s report.

Some of the other economic reports which were due to be released are still delayed because of government workers just starting to get back to work.  The reports we are still awaiting from this week are Housing Starts, Industrial Production, and the Consumer Price Index.  Additional reports from last week that have yet to be released are Producer Price Index, Retail Sales and National Employment.

Given all the data that has not been released it is very difficult for anyone to effectively gauge the direction and strength of the economy.  However with that said…prior to the shutdown the economy was continuing to improve at a modest pace and the likelihood of that direction changing during the government shutdown is minimal.  Experts are predicting that the government shutdown will reduce the 4^th quarter GDP numbers by ¼%.  This is not a very significant number however some analysts believe that this drop could be enough to have the Fed delay any pull back in the stimulus program that has been talked about all year to start in November or December.

JJ Mack
916-517-1800 x 300
jj.mack@apmortgage.com
www.apmcroseville.com

Mortgage rates have been declining for the last 2 weeks

Mortgage rates have been declining for the last 2 weeks

The partial government shutdown is starting to impact housing, however it is not for the reason that most people think.  Many people believe that with government workers on hiatus and the threat of the U.S. defaulting on their debt payments that people will delay their decision to purchase or sell their home.  Although there may be some truth to this, at the present time this is not where the greatest concerns relating to the future health of housing exists.

The first place the shutdown is having an impact is with FHA loans.  These types of loans require the government to issue insurance to the lenders that are closing these loans.  With the government shutdown happening, currently the Federal Housing Administration is working with a skeleton crew attempting to remain caught up on all the requests for insurance.  The problem is that the volume of loans being closed requiring insurance is far greater than the capacity for the skeleton crew working at  FHA to keep up with the demand.

Mortgage lenders cannot sell their loans in the secondary market without the insurance.  The challenge is simply that if lenders cannot get insurance on their government loans, they can’t sell them. If the lenders cannot sell their loans, they will stop closing them.  Removing FHA financing, even temporarily, could have a devastating negative impact on the housing market.

The second major challenge in closing loans is that Fannie Mae and Freddie Mac require on all closed transactions that the lenders provide a transcript from the IRS that verifies that tax returns the borrower provided to the lender match the returns provided to the government.  With the partial government shutdown the staff at the IRS that handles these requests are not working.  If a lender cannot obtain the verification, the loan will not be saleable to either Fannie or Freddie.  This once again can lead to lenders halting closings until they are able to obtain the IRS verification.

At the present time most lenders are willing to take the risk and they are continuing to close the majority of their loan pipeline.  However if the shutdown does not end shortly, or worse, the debt ceiling is not raised by October 17^th, real estate and mortgage chaos are a certainty to occur because financing for housing will come to a screeching halt.

Mortgage rates have been declining for the last 2 weeks.  Rates are down approximately ½% during this period of time.  The most recent report from the Mortgage Bankers Association demonstrates just how rate sensitive the market remains.  With the decline in rates refinance applications rose 3%.  The latest numbers released by the MBA are for activity in the prior week and it is likely that next week’s report will show an even more pronounced increase in mortgage activity on both purchases and refinances.

JJ Mack
916-517-1800 x 300
jj.mack@apmortgage.com
www.apmcroseville.com