Four weeks of government shutdown had forced mortgage lenders to start scrambling. And, with the reopening of the government this week postponed by a blizzard on the East Coast, it was unclear how long it would take for operations to return to normal at the Department of Housing and Urban Development. The typical turnaround time for FHA and VA loans from origination to closure is usually three to six weeks, but the government furlough slowed processing and forced lenders to make some tough decisions.
Crucial to the origination of a government-backed loan is the acquisition of a case number identifying it. These numbers are available only from the FHA or the VA, but are administered by a third-party computer network called the Echo system.
Lenders, for the most part, are not able to obtain these case numbers. But a smattering of FHA and VA offices across the country have still been providing them. Rick McGuire, president of Inland Mortgage Corp., Indianapolis, offered this explanation: "In some offices, when the employees left, they turned ... the computer off. Some places, they left it on."
Other lenders say that federal employees have been reporting to work, despite the shutdown, at some offices. "In St. Petersburg, Fla., there are people working without pay that are issuing case numbers," said Chuck Dahlgreen, manager of residential loan production for Wachovia Mortgage Co., Winston-Salem, N.C.
Once a lender acquires a number, the origination process can continue. But closing the loan carries some risk. FHA and VA loans must be submitted to the agencies within 60 days of closing to receive insurance.
It's a risk some lenders are willing to take. "We're just closing the loans in the anticipation that the federal government will reopen soon," Mr. McGuire said. "We don't think that it's fair to penalize borrowers because the government is shut down."
Inland Mortgage has enough capital on hand to fund the loans, he explained.
Wachovia issued a notice on Monday, informing borrowers that it would not be closing loans until the government restarts. Anything that was originated before the first of the year has both case and appraisal numbers, Mr. Dahlgreen said.
But the federal shutdown is not the only factor affecting VA lenders. On the last day of 1995, both the negotiated interest rate regulation and the lender appraisal processing program expired. Until the Senate approves the reinstatement of those two regulations, loans made to veterans must be fixed at 7%, and appraisals must be received directly from the VA.
"We can go ahead and process VA loans as best as we're able," said Jim Witherow, president of First Tennessee Mortgage, Memphis. "But we can't give out interest rates or discount points."
First Tennessee is also not guaranteeing rates to its FHA borrowers or closing any loans.