A Template for Next Time

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WE’RE HEARING it could have been a lot worse. But the big, bad government shutdown caused little more than a whimper as far as the mortgage industry is concerned. And since it might all happen again in a couple of months, we now have a template the mortgage agencies can reuse.

Fannie Mae and Freddie Mac remained open for business as they continued to take advantage of their dual identities as public/private entities. It’s simple. When the government shuts down, they put on their private company colors.

The Department of Veterans Affairs, which is always on the list of “essential” government agencies, kept its home loan guarantee program humming.

Perhaps the most surprising performance was turned in by the Federal Housing Administration. Hardly considered essential in most quarters and generally considered a basket case by its critics, FHA continued to insure single-family loans during the 16-day shutdown.

Department of Housing and Urban Development officials decided that insuring loans was an essential function and kept FHA’s electronic insurance system up and running. FHA’s interface with the Social Security Administration was also working so FHA lenders could verify Social Security numbers.

So even with a skeleton crew, FHA continued to support lenders and the housing market.

Rural Housing Service lenders were not as fortunate. When the U.S. Department of Agriculture shut down, so did RHS. The agency even disabled its automated underwriting system, called GUS. All rural housing lending stopped. GUS is expected to become operational again on Oct. 21.

It seems the biggest hassle during the shutdown involved the Internal Revenue Service, which stopped processing 4506-T requests.

It’s mindboggling that lenders and investors would become unhinged because they couldn’t get an IRS transcript to verify the borrower’s income and other key tax return data. But after hundreds of billions of dollars of loan repurchases and settlements, the industry felt as if it had suddenly lost its security blanket.

Fortunately, the shock wore off fairly quickly. After a couple of days the big boys, like Wells Fargo Bank and JPMorgan Chase, decided to waive the IRS transcript requirement. They instructed lenders to simply include a 4506-T form signed by the borrower in the loan file. Verification by IRS could wait until the government reopened.

But some lenders refused to close loans without an IRS transcript and some investors stopped buying loans.

It may be wise for the industry to come up with an alternative to IRS for verifying the borrower’s income. So the next time the IRS shuts down, lenders won’t have to worry about their backside.

Such a shutdown may come fairly soon. The budget truce between the Democrats and Republicans only lasts until Jan. 15. And both sides are galaxies apart when it comes to taxes and spending.

COMMENT OF THE WEEK: One great thing about our website is it is so easy to get interactive. Read a blog, type in a comment, do that annoying “Capcha” nonsense, and you’re done! From now on we’ll take a look at reader comments and bring you the best of them. “The possibility of basing comp on quality is refreshing.” That comment is from William Matz on a blog by Garth Graham. Garth has been doing a whole series of blogs about loan officer compensation, and they have been quite popular. After all, who isn’t interested in getting paid? Here’s the rest of William’s comment: “For too long the sole measure of originator success has been volume, even to the point that a superstar will brag about obtaining that volume by putting clients into inappropriate products. Originators who work as a part of a financial advisory team will spend more time with clients and generate les volume, but the quality will be significantly higher.”

SHOUT OUT: We’ve been giving shouts out to lenders who help boost our fragile recovery by net new hires. Truth is, as rates went up, it got harder and harder to find one. But as rates stay even or go down, let’s get those HR offices working! This week’s shout out goes to TD Bank, which has hired 140 new sales people within its retail footprint.

BLOG OF THE WEEK: When that mean old bank won’t give you the money to buy a house, young people, there’s always one lender you can turn to. No, we don’t mean Tony Soprano. Tony’s credit checks are minimal, but the vig on the loans makes subprime lending look like a heavenly choir. No, we mean dear old Mom and Dad. John McDermott’s blog this week is on that very topic, The Bank of Mom and Dad. However, according to McD, the fun starts when you try adding that money into a mortgage by the lender. You may need an attorney to do it. John is just such an attorney, if you live in Michigan!

MOST READ/EMAILED: This week’s most read content on our site was by Rachel Witkowski, about the CFPB’s massive new exam plans. The CFPB has lenders spooked, and they need to know the latest. The most emailed content was Amilda Dymi’s piece alleging one in five mortgages wouldn’t be covered under the mysterious QM rule.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.