By Margaret Chadbourn
WASHINGTON, Oct 2 (Reuters) - The U.S. government shutdownwill soon begin to delay the approval process for mortgages andcould threaten the nascent housing recovery if it stretches tomid-October or beyond.
Because thousands of federal workers have been furloughed,lenders are not able to verify borrowers' income and other datawith the Internal Revenue Service and Social SecurityAdministration, making it difficult to authorize loans.
That combined with lost income of some potential purchaserswho have been furloughed and a general increase in economicuncertainty tied to the shutdown could all hurt a housing marketrecovery that had already cooled a bit because of higherborrowing costs.
"It is the most pressing concern from mortgage lenders onMain Street right now," said Robert Zimmer with CommunityMortgage Lenders of America. "The mortgage application streamwill significantly slow down if the shutdown goes on a couplemore days."
A looming congressional fight over raising the nation's debtceiling by mid-month could add to the turmoil if investorsbecome wary of the potential for a default and interest ratesshoot higher.
The government closure will also lengthen the wait forborrowers seeking mortgage insurance from the U.S. FederalHousing Association, which backs about 15 percent of new loans.
Only 64 of the FHA's 2,972 workers are on the job, with onlyabout 30 of them dealing with loan endorsements andsingle-family properties.
"At a time when lenders are seeing business start to falloff a bit, the delay could cause a ripple effect," said BrianKoss, executive vice president at Mortgage Network Inc., aretail lender based in Danvers, Massachusetts.
Koss said his company spent the last couple of weeksplanning for the government closure by pressing the fast-forwardbutton on ordering government documents for home loan closings.
But a long shutdown without enough FHA workers to verifybuyer data will begin delaying some loan approvals, he said.
"The skeleton (FHA) crew is nowhere near the support staffthat they typically have on hand," said Mortgage BankersAssociation President David Stevens, a former FHA commissioner."It's going to create backlogs and the likelihood for slowdownsin the process is very high."
The shutdown is also likely to gum up the works for loansbacked by Fannie Mae and Freddie Mac. Thetwo firms are making extra efforts to tell lenders whatverifications are needed during the shutdown.
Although those two government-controlled mortgage marketgiants will continue normal operations, lenders worry they mighthave a difficult time meeting their tough loan standards sincethey won't be able to verify borrowers' incomes with IRS taxtranscripts.
The inability to verify Social Security numbers with the SSAcould also cause problems.
About 90 percent of all new home loans are underwritten,backed or owned by government housing agencies, and Fannie Maeand Freddie Mac, the two biggest, account for more than half.
The U.S. Department of Agriculture, which also offersmortgage guarantees as part of its mission to develop housingand business in less populated areas, has canceled loan closingsduring the shutdown - yet another factor that will weigh on themarket.
"We're going to see this worsen as the days go on," Stevenssaid.
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