We received an email today from our “home office” that basically says the news from the Government Shutdown could be bad news for mortgage rates. This is especially important for folks who are waiting at the USDA Home Loan office for the Underwriters to come back from Furlough. If your USDA Loan has been sitting at some office waiting for someone to see it – you might have a BIG USDA Loans Expired Rate Lock In Dates issue.
Because of the tense situation with financial markets as a result of the budget impasse and the debt ceiling debate, we agree with the Economic Analysts wringing their hands. Many are saying that there are enormous risks associated with this Government shutdown and the fact that we are hitting the place where the US can not meet it’s obligations because of the debt ceiling. Here are the two things we think borrowers should be aware of:
1. There isn’t a very strong likelihood that interest rates are on their way down
2. There is a possibility that rates could get absolutely hammered
With negative risks weighing much more heavily than upside potential; we’ve spent most of the morning making certain that our loans are locked – and that we know exactly which documents might be expiring. Especially with USDA Loans already in process, we are concerned that they are going to have their rate locks expire before we can close the loan.
What happens when your USDA Home Loan rate expires??
When you lock into a mortgage rate, the Bank is Guaranteeing that rate for a specific period of time. In certain cases, we can get 10, 15 and 20 day extensions on those rates. In MOST cases, Steve and I do NOT pass along the extension fees we are charged to extend a mortgage rate. In some rare cases, especially those were we are already paying a portion of the closing costs, we must pass those fees for extending the rate on to the borrower.
Every Bank’s policy and cost associated with extending fees is different. This is definitely something you should be discussing with your loan officer TODAY. It could be that contracts need to be re-negotiated, so that a Seller can help with more of these costs.
I expect that there are a few hundred loans (or more) waiting in line at the USDA Home Loan offices in NC with rates that are expiring. If the mortgage rate expires, and we can not extend the rate (for whatever reason – let’s say the Government let’s the Debt Ceiling thing blow up) and rates are HIGHER – we have to go BACK IN LINE at USDA and wait for another underwrite.
When the USDA Home Loan Underwriter approves the loan – it’s based upon the payment that we send them. The payment, obviously is determined by the rate. So, if the rate increases, and that makes a payment go up by as much as 2% – it will need to go back to USDA.
When we have to raise a mortgage rate, we must re-disclose all of our fees and documents (many of them) will need to be re-signed. There’s a 3 day disclosure requirement, meaning we must disclose and wait 3 days before you can close. If a miracle happens and rates go DOWN, and your rate has expired, and you negotiate a BETTER rate – then your loan does NOT have to go to USDA Home Loan Underwriters for review… however, you will be required to wait 3 days before you can close (another one of those rules Congress made up that make no sense).Documents Expiring
If you have a loan in process, or sitting at the USDA Home Loan Office in NC – we feel your pain. The Seller is anxious, your landlord is probably wondering if you are really moving out – you have boxes everywhere… It’s a mess. We understand how frustrating this is.
One of the pro-active things you can do is check with your loan officer and see when your Credit Report, Bank Statements and Employment documents expire. If you have updated bank statements, pay stubs, etc. be prepared to send those so they can be added to the file.
The Credit report, for instance, is only good for 90 days. If you started looking in July, and the loan officer didn’t update your report prior to sending it to USDA – it’s likely expiring right now. I hate to be the one to mention this, but your whole file might have to be sent BACK to USDA Home Loan Underwriters for review because of this…
IRS Transcripts Delay Closings
We have some self-employed borrowers who we cannot close without IRS transcripts. These folks applied or went under contract right as the Government shut down, or soon thereafter. We must have the IRS Transcripts to send to the USDA Home Loan Underwriters, and for our underwriters to complete the process. Because of the shutdown, we expect it to take us at least 7 to 9 business days from the time the IRS opens back up, until when we can expect to see the Transcripts in hand.
We’ve been busy calling borrowers, selling agents, buyers agents and builders to update them, and set the expectation for what is likely to happen if the Government stays in shut down… and what we can expect if they go back to work until January 15th.
KEEP YOUR HEADS UP!
If you are in process – or you are a Seller wondering what is going on with the USDA Loan the folks buying your house are getting, we suggest asking NOW about documents and Rate Locks that are expiring. It will make the process so much easier to know NOW – as opposed to finding out later next week.
We are simply advising folks so that no one gets caught realizing next week that we’re too late to extend a lock if we needed to in order to save a deal. Steve said, “We could lose substantial amounts of money pretty quickly by falling asleep,” with as many USDA Home Loans as we have in the pipeline.
REMEMBER – a Credit Report is going to be pulled right before closing…
Have more questions about Options for folks who don’t want to take more chances with USDA Loans? We might be able to help. We will be glad to talk with you about your USDA Loans Expired Rate Lock In issues too. Call Steve and Eleanor Thorne 919 649 5058 or leave us a comment below – I try to answer all questions as quickly as possible!