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Government Shutdown Impact
The federal government was shutdown for much of October. How did the shutdown impact the real estate marketplace?
In October, we saw that pending home sales declined while prices continued to rise.
The shutdown locked out 800,000 federal workers, but the impact was far greater. For instance, the IRS could not process tax return transcripts (Form 4506 T). That's a problem because lenders use this form to verify borrower incomes. As the Mortgage Bankers Association explains, "without tax transcripts, loan processing may be delayed, depending on individual housing agency requirements and aggregator guidelines."
With new mortgage guidelines established under Wall Street reform, lenders must verify borrower income and employment. No one argues that such verifications are unreasonable, but when confirmations are wrong or not made, it’s the lender who gets in trouble and may have to buy back the loan from mortgage investors years down the road.
Thus, when something as basic as tax transcripts are unavailable, lenders are stuck – they want to process mortgage applications but face serious consequences if it later turns out that there were errors or omissions in the loan file. Prudence suggests that many mortgage applications were at least delayed.
However, the federal shutdown raises a bigger problem. What about consumer confidence?
People buy big items when they have some sense of financial stability. Many traditionally think of government jobs as among the most secure, but that may no longer be the case.
"Falling public employment has been among the largest contributors to unemployment in the United States since the end of the Great Recession," says the Brookings Institute. It points out that between 2009 and 2011, we reduced the ranks of air traffic controllers (by 28.5 percent), police officers (8.4 percent), teachers (5.6 percent) and emergency responders (43.5 percent).
It's not just government workers who lose jobs. When the NASA space shuttle program ended, it was expected that 600 federal employees would lose their jobs, along with 8,000 private contractors. One has to ask: How do such job losses increase real estate demand and home values?
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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