The government shutdown may force the housing market to a near-standstill, simply because of a clog in the paperwork.
Although initially it seemed the housing market would be largely unaffected by the government shutdown, lenders are hitting a roadblock that could cause major headaches in the mortgage market. The IRS is closed, and that means lenders cannot verify any tax information from applicants.
Whenever a borrower applies for a mortgage, he or she provides the lender with a slew of paperwork–bank statements, paycheck stubs, W2s and federal tax returns–that the lender must then verify. In order to do so, the lender requests a verification of employment and a 4506-T tax verification transcript from the IRS that details the borrower’s tax return information, verifying what the borrower gave to the lender.
“Without access to tax transcripts and relevant information that must be verified by these agencies, it may not be possible to complete the loan verification process,” said Don Frommeyer, president of the National Association of Mortgage Brokers, in a release. “Thus, the lenders working through the shutdown may come to a standstill while processing loans.”
Some companies are, in fact, putting their lending on hold, while others are trying workarounds.
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Source: CBS Money Watch