The Impact of the Government Shutdown on Mortgages and Small Business Loans
The Impact of the Government Shutdown on Mortgages and Small Business Loans
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The real estate market is still in recovery mode following the financial crisis and recession which began in 2008. This recovery is now slowing down as the government shutdown nears the end of its second week. Mortgage brokers and lenders are stressing that loans are still moving through the process but in many cases, closings are being delayed as lenders wait for required information and documentation from government agencies which have either shutdown completely or cut back to minimal staff.
The biggest hurdle for commercial borrowers and lenders is that the Small Business Administration has had to close its doors completely. This means that no SBA loans for any of their programs can be approved until the government reopens. Many lenders are still willing to work with small business owners to prepare their applications so that they are ready to be submitted when the SBA can return to business as usual. However, if the shutdown continues for too long, borrowers could miss out on the properties they want to purchase as they wait for funding that may or may not come through any time soon.
Another major impact on the mortgage industry is that the closure of the IRS means that institutional lenders are unable to obtain the required IRS transcripts for borrowers. This may have less of an impact on the commercial market depending on your lender’s requirements. Some lenders are continuing the underwriting process up to the point of closing and setting more distant closing dates in the hope that the shutdown will end in time to request the transcripts, finalize the loan, and close on the property. Another slowdown in the underwriting process is the difficulty of verifying borrowers’ social security numbers.
Consumer confidence is taking the biggest hit. Buyers who have difficulty securing funds may lose out on good deals which need to be closed in a timely manner. Sellers could become wary of deals falling through at the last minute as lenders hold off on requesting information from government agencies that are shutdown until the end of the process rather than at the beginning. This could lead to fewer properties on the market, which could make it harder for buyers to find the right property, or could also increase the costs of purchasing properties if they are in shorter supply than demand.
Private lenders may have more flexibility during this time to help borrowers continue to secure financing for commercial real estate purchases in a timely manner. It is important for borrowers to discuss any potential slowdowns or hurdles with their broker or lender in advance so that they know what kind of timeline to expect in order to secure financing for new real estate loans until the government is able to reopen for business.
This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender. [google_authorship] has been in the private capital lending business for 41 consecutive years.