Mortgage Market Responds to Government Shutdown

Some of the first mortgage market responses to the government shutdown indicate banks and other customer support agencies were prepared to react fast.

Credit counselors may be in even higher demand during the shutdown.

The Homeownership Preservation Foundation, a nonprofit that specializes in assisting distressed foreclosure risk borrowers through the Homeowners HOPE Hotline, has issued new unemployment forbearance guidance for affected employees who may not be able to pay their mortgage due to loss of income.

In case of a prolonged shutdown, said CEO Colleen Hernandez, many homeowners will be eligible for unemployment forbearance relief and may benefit from talking to a housing counselor with knowledge about this type of agreement borrowers can reach with their lender or servicer.

Fannie Mae has issued a directive to lenders with information about how they can help borrowers, she said, providing “much needed clarity” and servicing guidelines.

Fannie endorsed unemployment forbearance in addition to directing servicers to suspend related credit bureau reporting for newly delinquent borrowers.

Starting last week reports revealed the shutdown brings bad news for the mortgage market, said mortgage expert andpresident of the National Association of Mortgage Brokers, Don Frommeyer. Loans will continue to go through the system at a slower pace and “some processing delays could be likely” in cases when lenders need IRS transcripts and Social Security verifications.

Also loans that have already closed and are in the process of insuring may have problems, he said, but with the Federal Housing Administration processing reports and the VA functioning through the government shutdown “most processing of mortgage loans will be unaffected by the shutdown.”

While not completely off the hook, mortgage lenders needaccess to tax transcripts and relevant information that must be verified by these agencies, otherwise “it may not be possible to complete the loan verification process.”

Lenders working through the shutdown may come to a loan processing standstill,Frommeyer warns, which has caused some speculating that “as a side effect,” interest rates could increase across the board, “depending on what the bond market does during this time.”

TD Bank, one of the nation’s top 10 lenders, has taken action to assist federal employees impacted by shutdown offering the TD Cares Payment Assistance Program.

The government shutdown has our customers concerned, said EVP, head of retail distribution and products, Nandita Bakhshi.”Our hope is that we can make it easier for our customers to cover their bills and make ends meet if they're not receiving their pay."

TD Cares will offer TD customers free access to funds through checking overdraft services and flexibility for their mortgage and credit card payments.

The program will run from Oct. 10 through Nov. 2, or the end of the government shutdown.

It includes access to funds for customers who have had a TD account open for at least 60 days and are in good standing. They are eligible to access up to $1,000 over their current deposits.

Mortgage assistance is offered for short term relief, and late fee refunds on TD Bank Visa credit cards will also apply albeit with some restrictions.