With most IRS and USDA offices idled due to the government shutdown, home buyers trying to borrow under some government-backed lending programs are having to wait on Congress to reopen the federal government.
Borrowers seeking rural development loans through the U.S. Department of Agriculture have been unable to close on their mortgages since the new federal fiscal year began on Oct. 1 and USDA and other federal agencies largely shut down without a new budget from Congress.
"I've got four rural development loans at different stages waiting right now so it's affected a lot of people," said Richard Smith, a mortgage broker in Chattanooga for Stearns Lending Inc. "It's certainly an issue, although to this point everyone seems willing to wait until it gets resolved."
Although rural development loans are stalled, FHA, VA and conventional loans are being processed, for the most part, with lenders accepting applicant claims about income levels.
"We're not seeing real pain yet, but we are seeing a lot of inconvenience," said Don Oakes, founder and president of Mortgage South in Chattanooga. "As every day goes by that becomes more and more a factor."
Nearly all lenders are agreeing to accept applicant's tax filings to verify income during the government shutdown, recognizing that any deliberately false income information given by applicants could result in criminal charges. Oakes said it might be two to three months before some rural development home loans close due to the backlog of cases building up while agriculture employees are furloughed during the government shut down.
Although home borrowers in the cities of Chattanooga, Cleveland and Dalton, Ga, don't qualify for rural development loans, most rural or undeveloped areas in the region do and such loans don't require the down payment of most other types of mortgages and are available for most low- to moderate-income families.
The economic uncertainty bred by the government shutdown may make some home buyers more cautious about making a big-ticket purchase in the current environment, but Smith said most recognize that mortgage rates "are still at fantastic levels" - typically from 4 to 4.5 percent on 30-year notes - but are likely to head higher over time.
If Congress doesn't raise the debt limit and bond buyers fear a default, interest rates are likely to spike. But even if Congress acts to remove that threat, the Federal Reserve Bank has signaled that over time it will gradually back off of its monetary stimulus, pushing up interest rates as the economy continues to improve.
"As the Fed ends its bond purchase program, interest rates are likely to move higher over time and a lot of buyers recognize that it's still a great time to buy," Smith said.
Contact Dave Flessner at dflessner@timesfree press.com or at 757-6340.