Lending in the High Tech Age

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the latest ANALYTICS Or ig i nat ion s e r v ic i ng a na ly t ic s Capital Economics examines the impact a possible default could have on housing. M ore than a week in, the government shutdown was "proving to be an inconvenience, rather than a showstopper, for the housing market recovery," Capital Economics said in its newest Housing Market Update. Looking at the housing-specific consequences of Washington's standstill, economist Paul Diggle notes relatively little has changed. The Federal Housing Administration (FHA), which at this point insures roughly 25 percent of purchase mortgages and 15 percent of refinances, has continued to endorse new loans (albeit at a slower pace) since the shutdown, despite the fact that about 98 percent of the agency's staff has been deemed "non-essential" and sent home on furlough. Diggle also notes that the majority of lenders currently making FHA loans are doing so with "delegated authority," meaning they don't require approval to continue making those loans at this time. The closure of the Internal Revenue Service (IRS) has also done little to disrupt processing. Though some lenders find themselves stymied by their inability to receive transcripts of tax returns to verify borrower The M Report | 49 se c on da r y m a r k e t Recovery Continues Despite Shutdown, but Debt Ceiling Awaits income, "many lenders are closing loans with the intention of requesting tax transcripts later, accepting tax returns direct from borrowers, or accepting alternative documentation," Diggle says. "While the shutdown so far has put downward pressure on Treasury yields due to its implications for economic growth and monetary policy, an actual default would presumably see Treasury yields and mortgage interest rates rise," Diggle explained. Even so, rate hikes in recent months have demonstrated that a rise in interest rates won't halt the housing recovery—in fact, Diggle says, it would spike of about 200 basis points to stop growth.

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