Investors rally on government shutdown
But it's not over yet. A debt ceiling emergency could send investors running
While most industry experts are confident the mortgage market can withstand a short-term government shutdown, others are fearful of what a prolonged federal freeze will mean for investors.
For now, the government shutdown is not expected to have a significant impact on mortgage investors in the near term, said Securities Industry and Financial Markets Association managing director and acting head Chris Killian.
"Fannie and Freddie should be unaffected by the government shutdown (Freddie Mac went so far as to issue a client update stating this), Ginnie Mae informs us that their MBS and Multiclass Securities Programs and operations continue uninterrupted, and FHA appears to be able to endorse loans," Killian noted.
He continued, "However, SIFMA urges Congress to come to a resolution as soon as possible."
Although mortgage giants Freddie Mac, Fannie Mae and Ginnie Mae are not directly impacted by the government shutdown, other agencies’ operations that will be disrupted will filter down to these entities, explained The Collingwood Group partner and managing director Brian O’Reilly.
"The fact that the functions for verification of a tax return or social security are impeded will impact the process of government loans," O’Reilly stated.
He added, "It could have an impact on the pipeline of loans that are near or about to close."
On a similar note, Mortgage Bankers Association senior vice president of residential policy Pete Mills recently noted that lenders would face the same challenges given that the Internal Revenue Service will stop providing tax return verifications.
Nonetheless, mortgage investors are taking comfort in a time when most other markets are reacting differently to such government folly.
For instance, the benchmark 10-year Treasury note yield rose to 2.637% Tuesday afternoon, while the 30-year bond yield also increased to 3.716%.
Treasury prices continue to rise as Congress debates spending and the Federal Reserve continues its monetary policy to boost government debt.
The point here is that investors are taking comfort in the fact that the economy has finally crossed the abyss into a government shutdown, meaning the debt ceiling debate may get resolved sooner rather than later, O’Reilly pointed out.
However, this vote of confidence is expected to be short lived.
"Markets have a hard time pricing for uncertainty and to the extent that this continues and Congress’ willingness to leave the issue of the debt ceiling unresolved will be a bad thing for the economy, and in relation, it’ll be bad for housing," O’Reilly concluded.