subgenius wrote:Kevin Graham wrote:I just had two real estate deals fall through because of the shut down. A poll among realtors suggest 25% of all transactions are being affected.
"affected", but not cancelled.
Perhaps you can clarify (unlikely).
From what i understand, the impact on real estate markets is minimal and mostly on those who use real estate for profit. So equity loans (HECA), flippers, and risky credit borrowers are mostly the ones being stalled by the shutdown.
Your "understanding" is based on bad assumption. I have experience flipping homes, and like most investors I don't use loans to do it. Every time I go to the county auction - every first Tuesday of the month - I'm sitting in a lawn chair with my laptop with usually a dozen other investors. And the folks running the show (auction.com) require proof of funds beforehand, no loans.
None of them are using HELOCs (what's a HECA?). If you want to get into home flipping using a HELOC (Home Equity Line of Credit) then that is usually a process for beginners and that takes a few months to clear. If the shutdown is having an effect on flipping, it will be in favor of the flippers since more people will likely be foreclosing increasing the supply and fewer beginners will qualify to compete with us.
Here is an example I'm dealing with as we speak.
One particular client I've been working with lives in Newnan has been trying to move up to Woodstock since last April when I began showing her family homes. Whatever they buy needs to be a contingency purchase since they have to first sell their home in Newnan. So after nine months of working with a lesser listing agent, they finally got their home under contract in mid November. She calls me up to say they're driving back up here to house shop. Since her home is under contract, we can no put an offer on a home of her choice. I found them the ranch home of their dreams so they can retire up here and they went under contract with a tentative closing date of January 8th.
So they're now binding to buy their new home, which can only be purchased if they sell their existing home first. So closing in Newnan was scheduled Jan 8th early in the morning and their new home that afternoon on the same day.
Right after the holiday break her agent in Newnan contacted their buyer's agent to find out if everything was still on track. Inspection was finished but they weren't clear if the home had gone through appraisal. This is a question agents can ask the other lender any time of day and get a straight answer. But not this time. It took days to get an answer because they're shorthanded, and this is when we find out that her buyers are VA loan and their lender up flat out quit his job and disappeared. So after days of trying to contact someone the buyers started freaking out and said they needed to find another lender and start from scratch with the entire process.
But the next day the lending company finally contacted them and explained the situation saying another person will be in charge of their existing loan and they blamed the entire thing on the government shutdown. So we tried coordinating with this new guy and for days he ignores our emails, texts and phone calls. We finally find out that the buyers do not have a clear to close because there was a holdup in underwriting. They didn't tell us this until the last day, just one hour before closing.
The person selling my client her new home lives out of state and she needs to know what the closing day will be so she can make travel plans accordingly. This company hasn't given us a date, they just keep saying that underwriting keeps giving the buyers more requirements to fulfill, and every time they fulfill them, that gets processed, and then after a couple of days of being in limbo, not knowing if they're going to get the clear to close or not, we find out AGAIN at the last minute that they need to provide even more documentation. We just found out this morning that the hoped for closing in Newnan would not happen today. Instead, now they're saying, without providing any details as to what it is they need from them, that they do not believe the buyers can meet requirements until Jan 31st.
So instead of signing a third amendment to extend the closing date, the seller got fed up with it all and is longer selling the home to them, which means even if they did manage to sell their existing home next week, they'd have no place to live. This is all the result of a full month of being jerked around and lack of communication due to the system being short of manpower. So the seller in Woodstock has to go back on the market after canceling travel plans twice now, which she insists affects her finances where she is living (she is also an agent). Going back on the market sucks for her because when a home goes under contract for a month and fails to close, this is all recorded in FMLS, and so future buyers are aware of this and tend to put it at the bottom of their list because they assume something must be wrong with it. They think maybe it failed to close because it couldn't pass inspection, or didn't appraise for the price asked, etc. Ultimately the seller typically has to settle for a lower purchase price. So the seller in Woodstock gets hurt, and the buyer is still in limbo as to where they're going to be living in the interim after they finally sell their home in Newnan, which could happen only God knows when.
When the shutdown first happened many realtors were not worried that it would have much of an affect on us. But as time drags on, the domino effect in how these things play out becomes more apparent. I'm a member of a Realtors group of more than 3,000 on Facebook and someone did a poll right after the new year asking if the shutdown had affected them, and most folks said no or "not yet." But three weeks later the responses are shifting dramatically in the negative.
One of them posted this article, which resonates with many of us. I'll highlight the points that relate to my transactions thus far.
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As we all know, the federal government is a behemoth, so the impacts from a prolonged shutdown will be felt far and wide. I'm going to focus on the following five areas: Government financing, conventional mortgages, flood insurance, commercial mortgages and property owners. It is also important to discuss the impact of the shutdown on government employees and what this means for the economy.
1. GOVERNMENT FINANCING
The federal government is the largest mortgage lender in the United States including FHA, HUD, VA, ESDA, etc. During the shutdown, the loans are continuing, though questions are not being answered with reduced staff and loans delayed on average three to four weeks by some estimates. Ironically, there are no official estimates due to the government shutdown.
2. CONVENTIONAL FINANCING
More than 70 percent of all mortgages are backed by the federal government via Fannie Mae, Freddie Mac and Ginnie May. Lenders originate loans and then sell the loans to one of the government sponsored entities that then bundles the mortgages and resells the various "strips" in the secondary markets. Each of the three government-sponsored entities is a quasi-private enterprise with an explicit backing by the U.S. Treasury. Although during the shutdown, it appears the GSEs are continuing as normal with minimal impact on their funding, borrowers could have issues as lenders verify information from the IRS. The IRS is running on a skeleton staff, so as lenders request verification of taxes, W-2s, 1099s, etc., there will be delays. This will lead to further delays in conventional funding.
3. FLOOD INSURANCE
To get a conventional loan on any property in a flood zone, the mortgage company requires flood insurance. The U.S. government is the primary issuer of flood insurance. Without it, properties can't be purchased or sold. Initially, the national flood insurance program refused to issue policies since they didn't have funding for staffing the program. A special bill was passed providing funding for FEMA and January 1, FEMA began issuing the policies at a delayed rate – three to four weeks out – due to the backlog.
4. COMMERCIAL MORTGAGES
The SBA is shutdown except for workers focusing on disaster services. The SBA lends 25.4 billion annually to small businesses. The SBA programs have come to a halt during the shutdown with no new loans being funded for small businesses. Furthermore, the SBA is the guarantor on countless loans that banks originate. The shutdown eliminates the review of any SBA guarantees as well. Small businesses throughout the country will be hurt by the lack of funding for their loans to expand, buy equipment, invest in infrastructure, etc.
5. PROPERTY OWNERS
With thousands of government workers no longer receiving paychecks, rent payments will be missed soon from government workers. Furthermore, Section 8 payments – low-income housing assistance – from HUD will not be sent, putting many low-income properties under financial duress.
Government workers could soon face eviction if the government is not reopened. Furthermore, many property owners with tenants that rely on governmental assistance will also be forced to make decisions for tenants to keep the lights on.
SECONDARY IMPACTS TO PROPERTY OWNERS
Along with direct impacts to property owners, there are countless secondary impacts. For example, let's say you owned a property outside of Rocky Mountain National Park that you rent nightly. With the park now closed, you likely are unable to rent the property. On the flip-side, let's say you owned an eatery close to a federal office – like the IRS or park service – with employees furloughed they aren't patronizing the eatery. Even as the government reopens, this is lost revenue that isn't coming back.
Not only will the shutdown impact purchases, refinances and owners of properties, government workers aren't getting paid. Government workers owe $400 million in mortgage and rent payments each month. Many of these payments will be missed to mortgage companies and landlords as the shutdown drags on. This could have long-lasting impacts on government workers even after the shutdown is lifted. For example, let's say a government worker misses a mortgage payment because they weren't paid. The lender would likely work with the borrower for a month or so. Unfortunately, this would still show a a late market on their credit and drop their score dramatically which would raise costs for government workers going forward. This same scenario will play out with various bills from utilities to credit cards to car insurance, etc., will all increase for at least the next 18 to 24 months. The rates will increase, and this could prevent many government workers from being able to purchase or refinance a home in the future.
Of course it is also should be obvious that out of 800,000 American workers, it is reasonable to assume that at least a few thousand of them were in the process of purchasing a new home. Whether they go FHA, VA or conventional, what lending institution is going to clear them for a loan if they have no steady monthly paycheck?
