With the U.S. government shutdown in effect and little progress made on an eventual reopening, mortgage lenders are busy measuring operational impacts while introducing strategies drawn on past experience to keep business flowing.
As of Wednesday, many questions remain about the full extent of the impact on support provided to lenders, with most federal services coming to a halt. The disruption of services provided by government offices essential to home finance, particularly the Federal Housing Agency and U.S. Department of Agriculture, stands to affect many home finance companies and the processes they use to originate and close loans.
While many say delays are to be expected, they also caution against overreaction.
“This does not mean we should stop showing homes or stop writing offers and those kinds of things. Don’t do that,” advised Randell Gillespie, president of LeaderOne Financial. “That would be misinformation and mischaracterization of the impact. But know that there are some things that we will see.”
At a time when systems aren’t operating as usual, mortgage leaders underscore that regular updates between top leadership and loan officers need to be prioritized. LOs, in turn, have the responsibility to transmit what they learn to inform borrowers and real estate partners.
“It’s critical that we just keep very clear communication and constant communication to our customers,” said Gillespie, whose company has been providing a daily update to staff in the days leading up to the shutdown.
Previous shutdowns in 2013 and one between 2018 to 2019, which lasted 35 days, gave the mortgage industry some clues on how to navigate the current funding crisis. Those experiences helped alleviate some concerns even as Congress came to an impasse.
Still, leaders also need to be mindful that today’s borrowers might be approaching the shutdown with more anxiety than they currently have.
“We may, as an industry, have experienced this before, but as clients looking to navigate first-time home buying or new home purchase or even just a refinance of their current loan, they don’t have those experiences to draw on. We are very mindful of how this impacts our clients and our communities,” said Kristin Broadley, senior vice president of operations at Sage Home Loans.
The effect on government-backed financing
As signs in Washington pointed to the likelihood of a congressional impasse, many companies said they engaged in advanced planning that mitigated any negative effect.
“We really kicked into high gear about a week ago, seeing that there wasn’t progress being made,” Gillespie said. “We started trying to make sure we were getting loan commitments on anything that could be affected.”
It meant focusing on checking off the list of items needed to close government-backed loans sponsored by the FHA, USDA or Department of Veterans Affairs sooner, rather than later.
“We gave those priority, because as long as we’ve had those commitments, we can close them,” he added.
Lenders ought to continue taking the same approach with each loan currently in process to identify potential “problem” files as the shutdown continues, leaders say. The government lending segment, in particular, poses the greatest likelihood for slow turnaround times. In previous shutdowns, USDA ceased operations entirely, while both the FHA and VA ran on limited staff.
“We literally went through and listed every possible entity that we could have issues with — what that looked like before when we went through this last time, and what it could look like now,” said Ryan Ellis, executive vice president of sales at Citywide Home Loans, about his company’s preparation.
Although impacts on conventional lending, which make up the majority of originations, and non-qualified mortgages will be less severe or maybe unnoticeable in many cases, slow response times in verifications from the Social Security Administration and Internal Revenue Service can impact how quickly any type of loan gets processed.
“The last time this happened, Social Security Administration did not process any requests or any verifications during the shutdown. Things like that could obviously cause a delay,” Ellis said.
The risks the mortgage industry has its eyes on
While many lenders already knew what to expect, any prolonged shutdown will likely raise worries among borrowers, and some businesses have put into place alternative strategies to address potential headwinds.
Ongoing communication will continue to be part of the lender playbook in easing concerns of not just borrowers, but also their partners.
“Who is asking questions is real estate agents. A lot of agents think that this is really going to affect FHA, and FHA loans are going to come to a halt. That’s been really interesting, and we hadn’t seen that in the past. But it’s become really prevalent this week,” said Chelsea Wagner, executive vice president of revenue at Lower.
The suspension of the National Flood Insurance Program, which is mandatory for many loans to be sold on the main secondary markets, also regularly comes up as a pain point in any government closure.
Whether the shutdown causes the NFIP to lapse for an extended period or slows turnaround times that affect loan approval, “we basically set up different pathways for those loans to be going down in different pipelines, and we have additional resources that we’ll put behind them,” Wagner said.
“If we need to get creative on product and pivot so that people can use programs that aren’t necessarily reliant on any of these government agencies, that’s also a route that we can take.”
How tech advances might help lenders through the shutdown
Lenders are in better shape to handle a shutdown today than they were in 2019, though, thanks to improvements in technology that allow them to obtain documentation or verifications manually, even when an agency is running on limited staff or closed altogether.
Lenders still have access to tax forms on other information they might need through various software platforms, even if government staff is unavailable. Similarly, work on FHA-backed loans, including mortgage insurance payments, can continue thanks to access to the agency’s technology platform.
“Having those technologies still definitely helps us not be completely in the dark or not be able to do something,” Ellis said.
A sense of deja vu may have played a role in industry sentiment on day one of the shutdown, with liquidity levels and activity surrounding mortgage-backed securities stable, even as market investors sent Treasury yields lower on Wednesday following the news.
“Today’s business as usual, and I’m sure that everyone got their trades off that they needed to sell in anticipation of this, so that they have liquidity,” said Foundation Mortgage CEO Marc Halpern.
“Currently there’s liquidity for people to be purchasing the MBS-backed securities. People are looking to purchase bonds,” Halpern said.
Industry leaders are also giving credit to how different agencies and organizations, including government-sponsored enterprises Fannie Mae and Freddie Mac, prepared the industry to meet the challenge initially.
“Overarchingly, the industry as a whole, be it the lenders, insurers the GSEs, they’ve all kind of rallied and said, ‘Here are the things that we can do.’ I think everybody prepared,” Broadley said.
