Shutdown Delays Loans, Creates Uncertainty For Homebuyers

Russ Cofano, Missouri Association of Realtors CEO | Photo courtesy of the Missouri Association of Realtors
Russ Cofano | Photo courtesy of the Missouri Association of Realtors

With the federal government shutdown approaching its fourth day Friday, Missourians seeking federally insured home loans face the prospect of their loan approval being delayed.

The Department of Agriculture, the Federal Housing Administration and the Department of Veterans Affairs are all partially shut down. The USDA will not approve loans that are part of its rural housing programs during the shutdown. Delays are expected on loan applications being processed by the FHA and VA, according to a document from the National Association of Realtors.

That means uncertainty for would-be homeowners like Landon Enochs, a groundskeeper at Memorial Funeral Home and Memorial Park Cemetery in Columbia. Enochs and his fiancée, who are currently living in a trailer home in Columbia, applied in August to a USDA program for rural homeowners. They expected to get approval by Oct. 25 for their mortgage on a small ranch house on the outskirts of Columbia. Now they’re waiting to hear back from the bank, which hasn’t confirmed if the loan was approved before the shutdown.

“I thought, ‘Oh, no! I’m not going to get my house after all the time and the money I’ve spent,'” Enochs said. “I’ve probably got three or four thousand dollars wrapped up into this.”

The USDA’s website is not functional due to the lack of federal funding.

If the bank received a conditional commitment — which the USDA issues to lenders after approving loans — before the shutdown, it would be able to close the loan. Otherwise, the bank has to wait until the shutdown is over to complete the loan approval process, according to the National Association of Realtors.

Kevin McCormick, Pulaski Bank senior loan officer | Photo from linkedin.com
Kevin McCormick | Photo from linkedin.com

While existing applicants are in limbo, new applicants for federal loans will have to wait until the shutdown is over, according to Kevin McCormick, a senior loan officer at St. Louis-based Pulaski Bank.

The Internal Revenue Service is closed and suspended processing of Form 4506-T, which is used to request tax information needed for the approval of federal loans. The Social Security Administration is not issuing verification for mortgage processing due to its closure.

“It really just depends on the duration of the shutdown,” McCormick said. “I don’t know how many filings they get, but you’ve got to keep in mind all 50 states are sending these 4506-Ts to the IRS for validation purposes. I don’t know any investors that will accept the purchase of that loan without that in the file.”

Russ Cofano, CEO of the Missouri Association of Realtors, said it’s too early to estimate how much the partial shutdown will impact the real estate market on a state level, but he expressed concern that consumer confidence could be shaken.

“With the government’s shutdown, it will, and this is just my opinion, but it could put a question mark in buyers’ mind as to what that will mean to the economy in general, the stock market,” Cofano said. “And that could impact consumer confidence in a negative way and therefore impact the buying public’s desire to purchase.”


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