Jeni Pfeiffer presents mortgage update courtesy Jason Smiley: The government shut down has had little impact on Mortgage Bond pricing so far however there is an impact to the loan process that may delay escrows. Prior to the mortgage crisis in 2007 many loans were done with stated income and assets with no verification of tax returns. One of the quality control processes that was rarely performed at the time was obtaining a copy of tax return transcripts from the IRS to ensure the documentation submitted by the borrower was matching the actual returns filed with the IRS. Many borrowers got away with loan fraud since there was no verification done and they claimed their income was higher than it actually was so they qualify for more than they could actually afford.
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Well, the remedy for this is that lenders now execute a 4506-T form on every loan now to confirm the tax returns the borrower provides to the lender is matching the actual returns they filed with the IRS.
Lenders request this tax return transcript from IRS and they usually return it to us with in one to three days typically. Now that the “non-essential” functions of the government are shut down there is no IRS to process the tax transcripts for lenders to verify income for borrowers right now! So if you are in escrow there is a chance your lender will not allow you to draw loan docs and close until the tax returns can be verified. In other words until the government opens its doors again. I would imagine that there will be a tremendous back log to get these processed once the government does open again.
So the different lenders are dealing with the situation in their own way. Some are requiring just a W2 form and verification of employment from the HR department of the borrower’s employer. If the borrower is self-employed then they would require the tax returns from the borrower and a signed certified letter from the borrower’s CPA stating the returns provided are accurate. If the borrower prepared their returns themselves then this exception would not apply and they would be forced to wait until the government opened again to verify the returns. Some lenders have a no exception policy and will not allow borrower to draw docs and close escrow under any circumstances until 4506-T has been processed.
Hopefully the shutdown will end soon and this issue will go away. It’s also possible that if the shutdown does drag on, the lenders requiring the 4056-T without exception may change policy to allow loans to close with the afore mentioned temporary exceptions. Please advise your buyers and sellers that there may be delays in closing escrow.
For us at Guaranteed Rate we do have some lenders that allow for the exception and others that do not. For new transactions we’ll be advising our clients to lock with lenders that do allow the exception just in case this shut down drags on.
Mortgage Bond pricing has not had had much reaction to the shut down, but a weaker ADP Jobs report released on Wednesday gave bonds a boost and the upswing in MBS pricing continued this week. There was no BLS Jobs Report which is usually released on the first Friday of the month and is the biggest market mover typically. Once this report does eventually come out we’ll be on guard for price movement. The 100 day moving average was broken last week and this week followed through, approaching the 200 day moving average. For the near term its very likely bonds will trade between the 100 and 200 day moving averages (blue and purple lines below). As you can see from when pricing started the downward trend May 1st we’ve regained about half of the losses in the month of September and early October. This improvement has moved some buyers and refinance borrowers off the fence. Let’s spread the word that rates have improved quite a bit in the past 30 days and it’s time to get off the fence and buy a house!
Courtesy Jason Smiley. For more information contact:
VP of Mortgage Lending Jason Smiley and VP of Mortgage Lending Tony Guaraldi
GuaranteedRate Mortgage 1901 S Bascom Ave, Suite 105 , Campbell, CA 95008 408.508.5610