Would Government Shutdown Hurt Bay Area Housing?

Would Government Shutdown Hurt Bay Area Housing?

Short answer is ABSOLUTELY. If the DC stand off continues and forces an actual government shutdown – no matter how short term it might ultimately be for – people in real estate transactions will be affected here in San Francisco. The reason is that workers at the IRS and Social Security Administration would be furloughed and this would start a backlog of correspondence going unanswered. Why does that matter, you might be asking? While mortgage lenders have to use federal guidelines for mortgages, the approvals are still ultimately up to us (as lenders). However, a large part of the mortgage approval process involves verifying tax returns that were submitted by borrowers. This applies on just about every single kind of mortgage. So while some IRS workers will be exempt from furlough, those employees that would be needed for verifying tax info for borrowers would not be in that group of employees carry out what are deemed “essential” duties by the IRS.

As well, those borrowers that apply for VA or FHA loans would run into the same potential delays, as these government departments have to verify and process portions of such loans. The backlog from the shutdown and how long it eventually lasts in the end will still cause even further delays. A loan could also be delayed if a lender tries to verify a Social Security number. This is often required is some information in a loan application does not end up matching the information associated with a Social Security number in a credit report or other type of database, even it is just a typo-mistake. If the mortgage lender tries to verify the number with the Social Security Administration and there is no one there at the agency to answer the phone, the borrower is going to be stuck and the lender cannot proceed in the process. While there may be some work-around from bank to bank, at the end of the day, this is potentially going to cause some chaos in an already high-octane market and some serious delays in transactions.

Here in San Francsico, where multiple offer situations are still common, delays in a buyers financing could lead to deals falling through. Hopefully, for the sake of those buyers – since this is not their fault in any way – contracts can just be extended. But there are those sellers that are in tight positions and need to move forward quickly, so back up offers will become more important and relevant. It is very possible that someone in second position could ultimately land in the batters box for their chance to perform on a contract. It is also likely that once word of financing delays gets out there, that borrowers who would have been throwing their hats in the ring to make offers might decide to sit out until the shutdown has sorted itself out and things have caught back up in normal time for lending transaction timelines. The last time the government shut down, many transactions were botched and several sellers reported in San Francsico that they lost bids on their homes as a result of it. Some 3% of Bay Area sellers stated they received a weaker-than-expected offer because of the uncertainty that buyers were faced with. As we always say, markets – especially real estate- hate uncertainty. More to follow, but if you want to run a pre-underwrite on yourself in advance of a potential shut down, please Email Me.