Wednesday, October 16, 2013
Government shutdown gradually gridlocking real estate market
Beginning with an inability to verify buyer income and employment. Hello IRS, are you there?
Last week, we told you of some lucky ducky banks that don’t have to jump through all the government-imposed goobly-ga out there that has resulted in delayed mortgages or denied applications with the “government shutdown”. So far, I know of only one person really hurt by this, as she was buying a home with a mortgage backed by the USDA. But there are more, way more.
In Phoenix, in a market just showing fresh signs of life, real estate agents say business is slow at a time of year when it’s usually brisk. And a Tempe senior loan officer says about 10 percent of mortgages in his branch’s monthly business have been stalled due to the shut-down.
Then, as if on cue, at least one Scottsdale agent says properties are not moving, a sudden change from the climate just ten days ago.
ALL BECAUSE OF THE SHUTDOWN! Are we feeling this same pain in DFW? I seem to be hearing about a lot of reductions lately, mark-downs almost.
Experts say the government shutdown has affected almost every borrower, from the government-backed loans used by lower-income and poor-credit borrowers, to jumbo loans geared for the wealthiest borrowers. That’s because the Internal Revenue Service isn’t open or answering questions, (they are, however, still collecting our money go figure) or verifying borrower’s incomes against filed tax returns, a hoop most mortgage companies must jump through, asking, “How high?”
Thankfully, Fannie Mae and Freddie Mac are accepting loans and holding off for verification until the shutdown ends. But if they cannot verify the borrower’s income against reality, then the lenders may be in trouble or end up buying back the loans. Shades of 2007? We sure hope not.
Over at Inman News, the editors have outlined the three biggest headaches for consumers if the shutdown continues. Guess what comes first?
1. Homebuyer sentiment
“In a climate of uncertainty, would-be homebuyers are likely to keep shopping, but wait to head to the closing table until it becomes clear that the debt-ceiling showdown isn’t snowballing into the worst-case scenario — another financial market meltdown on a 2008 scale. Consumer confidence was already at a nine-month low in October, in part because of worries about the budget impasse.”
How will this affect us in Dallas? It will have a trickle down effect. Consumer confidence is not so low in Dallas as it may be in the rest of the country; we have jobs, companies and people moving here. Buyers may have let loose finally last January, but they are still easily spooked and memories of the meltdown of 2007 have not faded.
2. Mortgages, mortgages, who needs a mortgage?
The government shutdown has already hindered mortgage lenders’ ability to get records they need to verify borrower income from the IRS and the Social Security Administration. Banks have come up with “workarounds,” including following the example of Fannie Mae and Freddie Mac in requiring IRS verification of income only when borrowers finance multiple properties, CBS Moneywatch reports. FHA has put nearly half of its workers on leave during the shutdown, but loan applications by owner-occupants can still be routed through automated underwriting systems. The big question is, with so many mortgages relying on some kind of government backing, what happens to secondary mortgage markets in the event that the debt ceiling is reached?
Good question: Rates on some adjustable-rate mortgage (ARM) loans are tied directly to Treasury yields, which could rise sharply in the event of a default, says Inman. But fixed-rate mortgages should have some cushion from the surplus revenues now generated from all those guarantee fees. As far as mortgage rates, John Lonski, chief economist with the capital markets group at Moody’s Analytics, estimates that rates on 30-year mortgages would be/could be at least 5.5 percent. Translation for Dallas: rates might be higher, but not by much.
3. It’s the economy, stupid
If the government hits the $16.7 trillion debt ceiling on Thursday, an analysis by Reuters says many people would not notice much right away. We will wake up, make coffee, get gas, go to work. The government would have to slash spending. And that’s where you would see fireworks.
There is a $12 billion Social Security payment due October 22, and at this rate, Quicken won’t be cranking. The forecasting firm of Macroeconomic Advisers says the swirl of government spending cuts and a severe credit crunch could lead to 3 million layoffs, pushing the jobless rate up. Dallas version? Anyone who depends on a check from the government may be dipping into their own piggy bank for a bit. Federal employees may feel it more, though the government can prioritize payments, delaying defaults on Treasurys. Be nice to a banker: banks will be willing to advance funds to many companies and even citizens that are owed money by the government as the standoff continues. Yeah, right now D.C. is a banker’s very best friend!
Just wonder what the interest rate on those loans will be?
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