Oregon and Washington homeowners looking to avoid bankruptcy or just lower their monthly expenses through mortgage refi will now see the application process slow to a stand still.  For consumers trying to avoid foreclosure through modification or lower their expenses in Chapter 13 Bankruptcy, this is horrible news. Beyond furloughs, lost wages and diminishing global clout, the shutdown is beginning to have consequences for consumers that no one really anticipated.

Tens of thousands of home refinance seekers nationwide will now be unable to get approvals because of the government shutdown, potentially undercutting the nation’s rebounding housing market.Without the requisite documentation from the FHA, IRS and the Social Security Administration,  lenders are now less willing to make loans; that is if they can make them at all. For example, lenders rely on the IRS to confirm borrowers’ income and on Social Security to confirm their identity.

Every day that government offices stay closed will delay an increasing percentage of mortgage and interest-rate approvals. Under normal circumstances roughly 18,000 refinances are completed across the country every day. Picture the backlog and slowdown even after the shutdown ends. Who knows how many bankruptcy petitions will be filed in the Seattle and Portland Bankruptcy Courts as a result of the mortgage refi option being taken off the table? With attention in Congress now shifting to an Oct. 17 debt-ceiling deadline, there is no immediate end in sight to the government shutdown.

The problem is that approval of mortgage applications requires several interactions with the federal government and lenders have become much more meticulous about following federal rules after the housing crisis that began in 2007, and are now more thorough in verifying the information on loan applications. Furloughs at the IRS that could have the widest impact. Lenders routinely file a form with the IRS asking for a copy of a borrower’s tax returns. The purpose is to make sure that the buyer provided accurate income information.

But the IRS sent most of its employees home last week when Congress failed to agree on a budget, including those that process what are called tax-return transcripts. Lenders also rely on the Social Security agency to verify borrowers’ Social Security numbers as a way of confirming their identity. These checks are done automatically, but the Web site that provides the information is down.

Please contact our offices if you are attempting to avoid foreclosure through modification or use a refi to cope with other debts. The time is now to explore other options.