By Bruce Cathcart
As I write this article “we the people” are still suffering at the inability of “they the politicians” to come to any common sense solution to re-open the portion of the federal government that has been shut down due to a disagreement over the ACA (Obamacare). At this point it is easy to say that more fear than actual harm has affected real estate transactions and the Coachella Valley housing market thus far. Of course all that can change if the government shutdown is not resolved in the very near future.
The majority of the real estate transactions using financing in the Coachella Valley utilize mortgages backed by the Federal Housing Administration commonly known as FHA loans. The FHA has stated that they will continue to process and approve loans throughout the shutdown, which they have done so far. However, the FHA normally employs 8,709 employees and due to the government shutdown and mandatory furloughing the FHA now has only 337 employees. The FHA insures about 60,000 loans each month and as the FHA was never quite the model for efficiency with such a large reduction in their work force “some delays are expected”.
The same is true for the Veteran’s Administration (VA Loans) where their staff has also been skeletonized but continues to process loans, albeit at a much slower pace. In addition, veterans who apply for their loan guaranty certificates of eligibility and certificates of reasonable value, two documents required from the VA for processing VA loans, are also being delayed.
There are very few projects in the Coachella Valley that utilize the Department of Agriculture (Rural Development or RD Loans), but bad news for those that do as Rural Development is closed until the shutdown ends.
Another issue facing buyers using financing is their lender’s need to verify their tax returns. Lenders must submit borrower’s IRS form 4506T to the IRS for processing. The IRS considers this non-essential and is not expediting these forms at this time. While this is still true for FHA and VA loans, the government backed mortgage giants Fannie Mae and Freddie Mac said last week that lenders could continue to issue new loans without the IRS verification. Buyers will still have to complete the required paperwork, but the verification can come after the government shutdown ends.
Here in the Coachella Valley we have another issue that affects properties that are located on Indian leased land. There are two types of land; fee simple land, which is owned by the individual homeowner; and leased land, which is owned by another entity and leased to the homeowner. Primarily in Palm Springs, but also scattered throughout the Coachella Valley, there are many houses and condos that have been built upon Individual Trust and Tribal Trust lands that are subject to a land lease. These properties cannot be transferred or mortgaged without the consent of the U.S. Bureau of Indian Affairs (BIA). Due to the government shutdown no transfers are being approved at this time. Unless something changes transactions of properties on Indian leased lands will not be able to close until the government shut down ends.
So far all this adds up to more delays in the loan process for transactions on non-Indian leased lands and a delay until the government shutdown ends for transactions on Indian leased lands and transactions using RD loans. Cash sales and sales with conventional and jumbo financing are relatively unaffected. In addition, the interest rate has remained unchanged thus far throughout the shutdown. All this can change for the worse if the Federal agencies that affect these issues remain closed for a much longer term.
This week’s real estate tip: Buyers and Sellers of properties in the Coachella Valley with transactions utilizing FHA, VA or RD loans or on properties where Indian leased land is involved should prepare themselves for delays in their closings. As always, your trusted real estate agents and loan officers will be able to advise you in these situations.
Bruce Cathcart is the Broker/Co-Owner of La Quinta Palms Realty, “Your Friendly Professionals” and can be reached by email at firstname.lastname@example.org or visit his website at www.laquintapalmsrealty.com.