Mortgages Blog

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If the government shuts down the impact on mortgage loans will go beyond FHA.

Government officials and lenders say loans backed by Fannie Mae and Freddie Mac won't be affected by the shutdown because those agencies operate separately from the government, even though they have been under federal control since 2008.

But Fannie and Freddie, which back most home loans outside of FHA, require documentation to verify a borrower's income. Borrowers sign IRS Form 4506-T, which allows lenders to get transcripts of borrowers' tax returns.

It then takes the IRS 24 to 48 hours to return the verified transcript, which is required at closing.

But guess what? IRS employees won't be at work to verify the forms if there is a shutdown.

Mortgage brokers and lenders are advised that the IRS will not process 4506-T forms during the shutdown, according to Rob Nunziata, president of FBC Mortgage in Orlando, Fla.

"If there is no one at the IRS to verify these, I don't know what can be done," he says. "If we can't verify their income we can't close their loan."

It is not clear yet if Fannie and Freddie are planning to make an exception in the event of a shutdown.

But to be safe, borrowers who have a closing scheduled should check with their lenders or mortgage brokers and make sure their income has been verified by the IRS. If not, they should try to do get it done by Friday. The same goes for FHA borrowers, who will face other obstacles besides this in the event of a shutdown. (Read my previous post on this here.)

Some lenders verify a borrower's income with the IRS two weeks before closing or a few days before closing. It depends on the lender and the situation.