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