If standoff lingers, loan process could slow
The federal government shutdown that has put paychecks on hold for many government workers and shuttered national parks soon could affect those looking to buy or sell their home, experts say.
While it is too early to see an impact, an extended shutdown could mean delays for homebuyers needing income verification to lock down a home purchase, according to Mike Hardwick, CEO of Churchill Mortgage Corp. in Brentwood. When homebuyers pursue a loan, lenders must confirm their income to determine if they qualify for a loan, but with cutbacks at the Internal Revenue Service, that process could be delayed. What typically takes 15 to 30 days could take weeks longer if the shutdown continues. For buyers, that delay could disrupt the purchase if a seller won't re-negotiate the deadline, he said.
"The longer the shutdown goes, the longer it's going to take a loan to close," Hardwick said. "It just complicates things. ... If this thing were to drag on for another two or three weeks — it's not just Churchill, it's the entire industry — there is not a lender out there that won't be affected by it.
Close to 800,000 federal workers have been told not to report to work until a deal is reached, meaning delayed paychecks and curtailed spending. Additionally, government health care assistance has been stalled and parks have been closed. A slowdown to the mortgage industry could harm a sector that had been in recovery mode.
"It's frustrating and, frankly, I think there is plenty of blame to go around on both parties," Hardwick said. "They seem to have drawn lines in the sand and are playing hardball, and they are not negotiating and working together for the good of our country."
Beyond mortgages, small businessadministration loans, which also depend on the IRS for verification, could be slowed as well if the shutdown persists. Because loans take two to three weeks and are not immediate needs, the shutdown has not been an issue yet, said Kent Cleaver, president of Avenue Bank in Nashville.
"If the government opened next Tuesday or Wednesday, we'd have a minor inconvenience," he said. "If it goes on for three or four weeks, that's going to slow down the process."
If the shutdown continues for a long period of time, mortgage payments and the overall economy could feel an impact, but failing to address the debt ceiling could have the larger impact, said Jim Schmitz, Middle Tennessee president at Regions Bank.
Unless lawmakers extend the nation's borrowing limits, the U.S will not be able to meet debt payments on Oct. 17, which could trigger a default, cause interest rates to increase and cause credit markets to freeze, according to a U.S. Treasury report.
"That could have a real impact on interest rates, and what happens if for some reason the U.S. defaults on its bonds," Schmitz said. "For a lot of folks, it makes it a lot more expensive to make payments."