(MoneyWatch) The ongoing partial government shutdown is putting stress on a housing market already showing signs of slowing.
When hundreds of thousands of federal employees were furloughed, there were concerns that the inability to get records from the IRS and the Social Security Administration, along with insurance from the Federal Housing Administration,. Lenders use IRS data to check income, and information from Social Security confirms borrowers' identities.
But where there's money there's a way. Last week banks re-assured potential borrowers that they would come up with "work-arounds" for income verification, and so far they have. Many banks are following the lead of Fannie Mae and Freddie Mac, which only require IRS verification if the borrower is financing multiple properties.
Fannie Mae, Freddie Mac and the FHA insure the vast majority of U.S. mortgages, but so far there hasn't been much of a slowdown in that process. Because Fannie and Freddie are "quasi-government" agencies, they aren't affected by the shutdown.
By contrast, the FHA, which insures about 26 percent of all single-family loans, is part of the Department of Housing and Urban Development, where only roughly 60 of the agency's nearly 3,000 employees are working during the shutdown. But thanks to automation, many loans by owner-occupiers are being processed with little delay. Any loans needing flood insurance through FEMA, for self-employed borrowers or requiring Social Security number verification must be examined and approved individually. And the backlog on those is already growing and will only get bigger if the shutdown drags on. Rental housing properties needing FHA financing also have come to a complete halt.
The shutdown comes at difficult time for the housing market. Although sales and prices increased for much of the year, that momentum has slowed recently. The Mortgage Bankers Association recently reported that September mortgage applications for new homes decreased by 1 percent from the month before.
David Stevens, president of the MBA, said the real threat comes from the impact on an already shaky consumer confidence.
"The longer it goes, the greater impact it will have on borrowers, the housing market and the national economy," he said in a statement. "Different loan programs have different requirements, and these disruptions impact lenders in different ways, leading to confusion and fear among borrowers about whether they will be able to close on a home purchase or refinance."