Government Shutdown Will Delay Loan Closings

Its finally here, not that anyone was wishing for it. A flurry of moves by the House, Senate and White House late Monday night failed to break a budget standoff over President Obama’s health care law, setting in motion the first government shutdown in nearly two decades.

The shutdown means that 800,000 federal workers will be furloughed and more than a million others will be asked to work without pay. It will also have direct impact on the time it takes to close a mortgage loan.

As you may be aware all loans need to have tax transcripts verified directly from the IRS. Most loans also need to have social security numbers verified from Social Security Administration (SSA). This is done to prevent frauds in mortgage transaction. A direct verification of tax numbers from IRS is required to make sure that the tax returns submitted to the underwriter is indeed the tax return that was filed with IRS. Verification of social security number directly from SSA ensures that the loan is being provided to a legit person.

We have been informed by the IRS that in the event of a temporary government shut down due to the expiration of the government budget, both SSA and IRS services will be unavailable beginning October 1, 2013. These services will remain offline as long as the government shutdown is in place.

This being the case, lenders wont be able to verify either the tax transcripts or the social security numbers which could result in substantial delays in loan closings. How much the closings can be potentially delayed is dependent on how long there is an impasse on the budget.

Prudent management requires that whether you are buying or selling a property, you should prepare for all contingencies including the delay in closings. Remain in constant touch with your loan officer and real estate agent to gauge the impact of government shutdown on your transaction.

Feel free to reach out to me if you would like more information on this – [email protected]

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