The continuing effects of the government shutdown.

After my last blog about the government shutdown and real estate world, the effect has continued to interest me.

This week, Fannie Mae and Freddie Mac have loosened up on the rules for the banks to approve mortgages. Before, Fannie and Freddie required that borrowers must verify their incomes with the IRS before being able to close on a mortgage. However, due to the government shutdown, the IRS has been having trouble getting through all of these verifications.

Now, Freddie and Fannie have decided to allow the lenders to do loan the money without waiting for the IRS to verify. To me, this raises some red flags and some banks agree. Many of the lending banks are concerned about the lack of IRS credibility for borrowers that claim to be making x amount of money from self employment income sources. For an economy that already has a low-risk attitude after the recent fiscal crisis, some lenders may decide to wait until the shutdown is over.

Wells Fargo, who originally said that they would wait until the shutdown was over to continue mortgage applications, has decided after Fannie and Freddie eased up on the rules that they would continue to push applications down the line without IRS verifications.

What this could mean for the economy is interesting. The risk is high, and after the bubble bursting and the real estate market taking a catastrophic hit, why would you cut down on procedures on an already sensitive market?

Just my thoughts, share yours!