Beginning next week, thousands of home buyers will be unable to get approvals for their mortgages because of the government shutdown, potentially undercutting the nation's resurgent housing market.
Without paperwork from the Internal Revenue Service, the Social Security Administration and in many cases the Federal Housing Administration, banks and other mortgage lenders will be less willing to make loans, if they can make them at all. For instance, lenders rely on the IRS to confirm borrowers' income and on Social Security to confirm their identity.
Every day that government offices remain shuttered will delay an ever-larger fraction of mortgage closings, industry leaders say, jeopardizing mortgage and interest-rate approvals and spooking sellers. About 15,000 new home mortgages and 18,000 refinancings on average are completed across the country each day.
On Friday, House Republicans continued to insist on changes to President Obama's health-care program as a condition for funding the government. But with attention on Capitol Hill shifting to an Oct. 17 debt-ceiling deadline, there was no end in sight to the government shutdown, nor relief for prospective home buyers.
"Most people don't really think about, 'Well my loan is going to be underwritten by a federal agency,' " said Marj Rosner, vice president and sales manager at Long & Foster, a real estate firm. "But the government has a huge imprint here."
Major lenders are scrambling to figure out whether they can risk making some loans without the federal paperwork and assessing whether they should require additional documentation from borrowers because the IRS has no one working who can verify income.
Many mortgages were able to close as scheduled this week because the paperwork was completed before federal employees were furloughed, but some home loans have already been frozen.
"The problem is going to grow in magnitude every day this shutdown goes on, because lenders' liability is at risk," David Stevens, chief executive of the Mortgage Bankers Association and former head of the FHA, said after a conference call Friday with heads of a dozen banks.
Nor will the problem disappear as soon as the government reopens.
"Even if this were to get resolved in a week, you've got an enormous backlog," said Eric D. Gates, president of Apex Home Loans in Rockville. "It's going to double or triple the effects in terms of delays."
The approval of mortgage applications requires several interactions with the federal government that many home buyers may not know about. Lenders have become much more meticulous about following federal rules after the housing crisis that began in 2007, and are now more thorough in verifying the information on loan applications. These concerns were far less common when the government last shut down in 1995.
"The need for document checks and quality control just didn't exist," Stevens said. "Today, we're in a world of huge risk and regulatory requirements."
Among the obstacles, it is furloughs at the IRS that could have the widest impact. Lenders routinely file a form with the IRS asking for a copy of a borrower's tax returns. The purpose is to make sure that the buyer provided accurate income information.
