IRS Reopens Key Program for Mortgage Loans

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WASHINGTON—The Trump administration last week revived a program that is key to home lending, after the mortgage industry said its closure during the partial government shutdown could have forced lenders to delay or scrap loan closings.

The Mortgage Bankers Association and other industry groups had complained to the Treasury Department that the program’s closure as part of the shutdown could harm consumers seeking to obtain a loan.

At issue is an Internal Revenue Service program for processing forms that lenders use to verify borrowers’ incomes. Fannie Mae and Freddie Mac, which guarantee roughly half of the mortgage market, generally require the form to be submitted to the IRS by the lender before the loan is eligible for purchase by the government-mortgage giants. The program is also used for mortgages backed by the Federal Housing Administration, which insures an additional 11% of all U.S. single-family residential mortgage debt.

“We were advised by various parties that the shutdown of [the Income Verification Express Service] was creating significant issues for certain borrowers,” a Treasury spokeswoman said. “We are pleased to help taxpayers by ensuring this service continues despite the lapse.”

Though the program closed because it was funded through the normal appropriations process, the administration determined it could fund it instead through the user fees the IRS charges each time it verifies a borrower’s income. Industry officials said the fees are about $2.00 per request.

Reviving the program allowed some 400 IRS clerks to return to work, according to an IRS spokesman. Each week, those employees process the forms of some 400,000 people considering a loan, he said.

Officials said the move reflects the Trump administration’s push to go out of its way to keep parts of the government running, to minimize disruptions from the shutdown on consumers. Last week, the IRS said it would pay tax refunds even though the agency is subject to the federal government shutdown, after the reversal of a longstanding policy.

In a statement last week announcing the revival of the program, the IRS said it recognizes “the immediate hardship incurred if information is not available” to mortgage lenders.

John Mechem, vice president of public affairs at the Mortgage Bankers Association, said in addition to urging the Treasury to reopen the income-verification system, his group took steps to help federal employees affected by the shutdown by ensuring they don’t receive a hit to their credit scores if they enter into a forbearance with their mortgage servicers.

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