The longest shutdown in government history officially ended on January 26th, 2019. For over a month, all non-essential employees were furloughed, including many who are considered essential. These essential workers, such as air traffic controllers and TSA agents at airports, were forced to continue to do their jobs without pay. Approximately 800,000 federal employees were affected by this government shutdown, not to mention all the contracted employees who were also affected. Due to the length of this shutdown, huge financial ramifications were felt by many.
The Potential Impending Housing Crisis
This, most recent shutdown, had pretty far-reaching effects. According to Zillow Research, $438 million is owed by government workers in mortgage and rent payments for the month of January, payments they’re expected to pay despite having received no income. Of that amount, $249 million is due in mortgage payments.
People who rely upon assistance from the Department of Housing and Urban Development for help paying their rent didn’t receive their payments either. HUD did send out letters asking property owners to halt evictions for federal employees who weren’t able to pay their rent, but, that leaves the financial burden on the owners.
Aside from contractors hired by the government (who were furloughed without the promise of back pay), workers at stores and restaurants in and around federal buildings, and travelers who faced long lines at airports, the shutdown has wreaked havoc with mortgages and credit from people all over the country who don’t hold government jobs.
Each business day, 3,900 FHA or other government-insured loans are processed. With only a skeleton crew left managing operations, these processes were severely delayed during the shutdown and could take some time to catch up.
In addition, during the shutdown, employment verification for federal employees couldn’t be done for loans, nor could income verification be done by the IRS, causing delays or even denials of loans from Fannie Mae and Freddie Mac, the two companies that insure most mortgages. A short-term shutdown may not have had a huge impact on the housing market, but a long-term one has had much more far-reaching effects.
The Potential Effect on Credit
For furloughed workers or those who worked without pay, bills were still due and missed payment penalties could still be felt. Even without the shutdown continuing, having missed any monthly payments to lenders could have meant costly late payment fees, and an adverse effect on credit scores, which could have cost the consumer a lot of money in higher interest rates. According to FICO, a missed payment can cause your credit score to drop 90-110 points.
The damage isn’t immediate, however, and it’s worth noting that lenders can’t report consumers for late payments right away. Consumers have to be 30 days delinquent (after the due date) before the lender can report the delinquency to the credit reporting agencies, so many government employees should have the chance to catch up on their payments before they see too big of an impact on their credit.
Even with the shutdown being over, it’s important for consumers to call their lenders and speak up about payments during the shutdown. In past government shutdowns, some lenders have delayed sending derogatory information on their furloughed customers so that their late payments didn’t negatively affect their credit. Other lenders may let borrowers skip a payment, but they’ll probably keep the accrued interest on the account.
While lenders were under no obligation to help, many stepped up. AT&T waived fees and grant extensions to federal workers on their bills. The other major phone companies (Verizon, T-Mobile, and Sprint) were willing to help too. Banks and other credit unions helped out government workers by offering 0% interest loans and waiving mortgage and credit card late fees, and waiving overdraft fees.
As The Simple Dollar points out, there’s little that the credit reporting agencies (TransUnion, Experian, and Equifax) could do to help consumers during the shutdown. They merely put the information that’s furnished by lenders onto consumers’ reports. They don’t know who’s been furloughed, and they simply don’t have the ability to mark a credit file as late due to the shutdown. The most effective way for consumers to avoid damage to their credit score is to call the lender directly.
While the shutdown may finally be over, furloughed employees are far from done with dealing with its long term effects.