Mortgage approval process may cease in a shutdown

Regarding the government shutdown, Caroline Baum wrote this on Bloomberg:

What if the U.S. government shut down and no one noticed? Even worse (or better, depending on one’s point of view), what if all federal workers went on furlough and the public realized there were benefits, not just costs, to smaller government? Essential services will be maintained, including the distribution of Social Security checks. Employees involved in the military, national security and law enforcement will stay on the job. Non-essential workers will be furloughed. President Barack Obama says a shutdown would further reduce confidence in government. Guess what? It can’t go much lower. The approval rating for Congress dropped to 18 percent last month, near the lowest in the Gallup poll’s 37-year history of tracking the trend.

Word has it that since it doesn’t rely on Congressional funds, the Federal Reserve (central bank) would remain open for business as usual, with normal staffing levels. The Fed would therefore be able to continue with its day-to-day operations. The SEC is expected to continue operations as well. But lenders and vendors were out warning originators about possibilities.

The mortgage industry could be adversely affected by a government shutdown because there are a few critical parts of the mortgage approval process. Every bank must order tax transcripts from the IRS when approving loans, and also when doing FHA loans, a series of background reports are pulled on borrowers. Both systems would likely be shut down, causing big loan delays.

Independent of the government shut-down, Wells Fargo cut 1,900 mortgage jobs. “The cuts add up to about 3% of Wells Fargo’s mortgage staff, including interim positions that are tied directly to origination volumes. Most of the layoffs are these interim employees, who were told when hired that their position could be short term.” Wells Fargo’s overall headcount was 272,200.

BlackRock, best known for being the world’s largest asset manager and its huge institutional bond accounts & iShares exchange-traded funds, is planning a massive expansion in old-fashioned mutual funds and related retail offerings. BlackRock wants to double its $300 billion U.S. retail business by the end of 2014, with the managing director saying, “The firm has identified U.S. retail as a strategic priority. We think we can double our business from where it is now.”