Government Shutdown Funding Issues

Posted by on Thursday, October 10th, 2013 at 3:33pm.

The recent government shut down has left thousands of purchase and refinance loan transactions high and dry as some lenders are unable to fund loans without 4506-T income tax verification from the IRS and Social Security number verifications. These verifications are standard guideline requirements and many banks have been unwilling to fund loans without them. As the congressional deadlock continues, a growing number of lending channels has emerged that are able to commit to funding their loans without the verifications. And as time goes on, more and more lenders are likely to feel the pain of lost opportunity and enter the fray.

 

Thus far, the greatest flexibility in addressing the government shutdown funding hurdle has been found in conventional, FHA, and VA loans. Jumbo loans (those above the High Balance conforming limit of $625,500 that applies to many Bay Area counties) are typically more stringent with their underwriting requirements. Although some jumbo investors are willing to fund without the 4506-T and Social Security verifications, many will eschew applications with 2012 extensions filed later this year. The reason for their apprehension is due to the increased lag time and exposure they would have for files with extension filings. Normally, verifications from the IRS and Social Security Administration are provided within 48 hours. Depending on how long the government shutdown continues, there could be a considerable backlog of 4506-T processing requests. Verifications on tax filings made in April could take several weeks to process and those for delayed filings that have yet to be processed would likely take much longer. The bottom line: any loan involving jumbo financing should be handled with greater care.

 

Although an increasing number of lenders will be able to work around government shutdown issues in the coming weeks, and added ounce of caution is advised when working through any loan. Here is a short list of other scenarios that warrant increased scrutiny:

 

  • Loans for borrowers with more than 4 financed properties.
  • Borrowers with mid FICO credit scores below 700.
  • Loans with Red Flags associated with the borrower’s social security number.
  • Low FICO loans with borrowers showing multiple social security numbers.

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