A long shutdown could slow some mortgage loans

A short federal government shutdown won't derail the housing recovery, but it could delay closing of some home loans.

If the shutdown runs less than week, no big deal, lenders and mortgage experts say. Most loans take 30 to 60 days to close, and a short delay in processing won't likely affect that.

But if the shutdown goes longer, "We will be delaying closings," says David Zugheri, executive vice president of Houston-based Envoy Mortgage.

The biggest holdup is likely to involve the IRS.

When they consider a mortgage application, lenders pull borrower tax records direct from the IRS. Without an IRS response, "That will be where the holdup occurs," says Don Frommeyer, president of the National Association of Mortgage Brokers.

At Envoy, brokers rushed in recent days to get such requests in so fewer loans would be affected, Zugheri says. Builder Fulton Homes in Phoenix did the same, says Dennis Webb, vice president of operations.

Even so, a shutdown running longer than a week could result in loan delays, Zugheri says. He estimates 25% of his company's loan closings — or several hundred nationwide — could be delayed, largely because of the IRS issue.

Wells Fargo says IRS information requests were already processed for most loans in the pipeline. New applicants will go through the same check. Wells Fargo says it expects the IRS to quickly resume processing requests once the shutdown has ended.

FHA borrowers, who account for about 15% of the market, may see additional hassles.

The U.S. Housing and Urban Development's contingency plan says FHA will have "limited staff" during a shutdown and that the closing of FHA-insured loans may be delayed.

Even so, bigger lenders will continue to close FHA loans because they have authority from the FHA to assure the agency that the loan has been properly checked, says Michael Copley, retail lending executive at TD Bank.

About 80% of FHA loans are endorsed by lenders with that authority, HUD says.

Sma! ller lenders may not have that authority, so their FHA business could be affected more, Copley says.

If the shutdown goes longer than three weeks, look for ripple effects, says Guy Cecala, publisher of Inside Mortgage Finance.

For instance, home sellers may be hesitant to accept offers from FHA borrowers, who are often first-time borrowers with low down payments, because they fear loan-closing delays, he says.

Last week, the average 30-year fixed-rate loan hit its lowest level since July, Freddie Mac says. Typically, lenders lock rates for 45 to 60 days while loans get processed, says Keith Gumbinger of mortgage tracker HSH Associates.

Consumers concerned about loan-closing delays should check with lenders to see what rate-lock extensions are available, he says.