How Government Shutdown Affects Mortgage Lending

How Buyers Can Prepare for Worrying Government Shutdown in 2025

Last Modified: March 20, 2025

As we enter 2025, concerns surrounding government shutdown are still affecting the mortgage sector. In my original piece from January 2019, I provided insights into the impacts around that time. In hindsight, a lot has changed since then. This revised guide focuses on the impacts of government shutdown on mortgage lending. It provides relevant information for buyers and sellers in today’s fast-paced world.

Government Shutdown: An Unrelenting Hurdle

In America today, government shutdows happen when Congress does not agree on funding legislation or the President abstains from signing governmental budget approval bills. These freezes extend from days to weeks or even months, weakening the economy, lending, and mortgages.

Unlike the 2018-2019 shutdown discussed in the original article, today’s potential government shutdown would affect different agencies with revised operational protocols developed from past experiences. Compared to the past, Federal agencies seem ready for more robust contingency plans that focus on cutting the loss of essential services during operational pauses.

Major Mortgage Agencies Impacted as Government ShutDown

Department of Housing and Urban Development (HUD)

• FHA staff is limited, which may create further delays in processing.
• Policies still focus on single-unit family home endorsements even throughout the government shutdown.
• Unlike in 2019, enhanced systems are more fortified to withstand digital processing interruptions.
• Title 1 loans and reverse mortgages will still be subject to major delays.

Internal Revenue Service (IRS)

• Tax transcript verification (Form 4506-T) is put on hold throughout government shutdown.
• Numerous lenders have crafted new ways to verify this as time goes on.
• Some lenders have begun accepting alternative income verifications from some borrowers.
• Since automated verification systems were implemented in 2019, their effectiveness has increased.

United States Department of Agriculture (USDA)

• The shutting down of USDA rural development loans is still being enforced.
• Application submissions are frozen until the government reopens, although they may still be accepted.
• Several lenders provide bridge solutions to aid buyers in rural regions throughout government shutdown.
• Many lenders express concern over post-shutdown processing backlogs.

Government-Sponsored Enterprises

• During government shutdown, Fannie Mae and Freddie Mac continued their business activities.
• These entities remain insulated from the direct consequences of a government shutdown.
• These may also change their guidelines to mitigate delays from IRS verification checks.

Their automated underwriting systems have been modified to accommodate shutdown contingencies.

Department of Veterans Affairs (VA)

• Processing of VA loans is still in progress with little to no interruption.
• Operational work continues on VA funding fees and processing the Certificate of Eligibility.
• Since 2019, the VA has implemented better digital systems.
• Staff reductions may lead to slight delays, but the core functions are ongoing.

Potential Impacts on the Mortgage Process in 2025

Closing Delays

• The primary blocker remains to be the delays with income verification.
• Many lending institutions have devised specific protocols to increase closings.
• There is greater access to alternative documentation since prior government shutdown.
• Some digitized closing processes have reduced the requirement for in-person processing.

Underwriting Challenges

• Additional verification checks might be put in place by lenders on those who are on shutdown.
• The documents that are needed may have some modified criteria under them for the duration.
• Their automated systems that execute underwriting have been changed for shutdown scenarios.
• Portfolio lenders (those who maintain the loans on their books) may have greater flexibility.

Interest Rate Impacts

• The market’s reduction or uncertainty while on shutdown can influence interest rate volatility.
• If the shutdown is longer, it may affect the policies set by the Federal Reserve.
• There may be increased costs for services with extensions for the rate lock.
• The economic uncertainty during a shutdown can affect the broader market.

Housing Market Effects

• Buyers’ confidence can be hurt due to long government shutdown.
• Most market activities stagnate during the government shutdown.
• Shorter government shutdown do not have much impact on property values.
• Some local burst markets with high concentrations of federal employees may experience larger effects.

How Today’s Mortgage Industry Has Adapted

Post the 2018-2019 shutdown, the mortgage industry has made a couple of changes, namely:

• Advancements in technology: Government silos were relied on way too much. Now, systems of digital verification are in place.
• Not as strict for other verification methods: Many lenders use bank statements and other documents instead of IRS systems.
• Anticipatory planning: Standard procedures have been implemented to minimize disruptions by many lenders.
• Buyer/Seller communication: Processes to better inform buyers and sellers have greatly improved.
• Changeable contract terms: Some lenders offer temporary financing alternatives during other changes.

Advice for Homebuyers During Government Shutdown

• Get started as soon as possible: Start well before expected closing dates for timed mortgages associated with most real estate transactions.
• Complete all document work and prepare financial documentation: Prepare accounting records beyond what’s normatively required.
• Be ready for conventional loans: Try relying on unconventional financing, as it has low shutdown restrictions.
• Communication with all involved parties: Constructive communication with lenders, sellers, and agents optimally softens the impact of any pointed delays.
• Add versatility to agreements/contracts: Sign purchase agreements with shutdown contingencies.
• Take note of rate lock extensions: Discuss with your bank how to fend off rate surges with other extensions.
• Have contingency funds: Schedule funds for other expenses arising from deadline extensions.
• Work with experienced professionals: Other lenders who have gone through previous industry government shutdown may be able to maneuver forward professionally.

The Future Outlook

The impacts stemming from governmental layoffs have less and less effect on the ever-evolving mortgage technology and systems. Even when there is a government shutdown, the mortgage cycle has proven time and again to become increasingly flexible due to technological improvements and forward thinking.

While the mortgage market in 2019 was fraught with restrictions, today’s homebuyers have access to multiple resources and options to navigate period buyouts intelligently. However, careful strategy formation remains important when buying during potential funding gaps.

*This is an updated article from our resource section on the government shutdown and the implications on mortgage lending. It is advisable to check constantly with mortgage advisors who understand your situation for up-to-date details during an ongoing shutdown.*

Below is the old post from the 2019 archives.

This BLOG On How Government Shutdown Affects Mortgage Lending Was PUBLISHED On January 3rd, 2019

Many home buyers and sellers are concerned on how government shutdown affects mortgage lending.

• The United States government has had a government shutdown for a third time in the year of 2018
• The recent shutdown a few weeks ago is not a full shutdown
• It is a partial government shutdown
• This partial government shutdown is affecting nine of 15 cabinet-level agencies, including the Department of Housing and Urban Development.

How Government Shutdown Affects Mortgage Lending For Buyers And Sellers

We will discuss on how government shutdown affects mortgage lending in the past.

• Although it is a partial shutdown, it will affect both home buyers and sellers when it comes to mortgage lending
• Government and conventional loans can be affected with our government shutdown
• This is because many public government agencies is tied to the mortgage process
• The severity on how government shutdown affects mortgage lending is dependent on how long the shutdown lasts
• It seems this shutdown is different than the others and is mainly politically driven by Republicans and Democrats. HUD, the parent of FHA, is not expecting to affect mortgage lending on a long term
• However, as mentioned, it is dependent on how long this partial government shutdown will be

How Government Shutdown Affects Mortgage Lending And Government Loans

A shutdown in 2013 lasted for 16 days.

• During this period, HUD continued insuring FHA Loans
• As the shutdown continues, it will increase its effects on home buyers and sellers and the overall mortgage markets
• No doubt a long lasting government shutdown will affect sales of homes
• It may also affect housing values.
• Although FHA will be functioning, it will delay the mortgage lending process
• It may also affect the availability of certain government loan programs

How Government Shutdown Affects Meeting Closing Dates On Purchase And Refinance Transactions

The government shutdown has stressed many mortgage companies and professionals.

• Key question is will the shutdown affect meeting closing dates?
• Will it delay mortgage processing and underwriting?
• Will certain effects of the shutdown affect lenders ability to perform borrowers verification process during the mortgage process?
• The answer is YES
• The mortgage process can be deeply affected with the important role the IRS plays with verifying income tax transcripts and 4506T
• USDA Loans can be affected due to the impact the shutdown has on the United States Department of Agriculture

How Government Shutdown Affected Mortgage Lending In The Past

The mortgage industry managed through previous government shutdown with minor disruptions in mortgage operations and processing. There are five federal government agencies that can potentially affect mortgage lending:

• Department Of Housing And Urban Development:
• FHA will be operating at partial capacity and endorsing single family homes
• Limited staffing can delay processing
• Reverse Mortgages and Title 1 Loans will be affected by the shutdown
• Internal Revenue Service
• The IRS has stopped processing transcripts through 4506T
• United States Department Of Agriculture
• USDA will be affected by the government shutdown and all single family USDA Loans will be halted during the government shutdown
• Fannie Mae And Freddie Mac
• Fannie Mae and Freddie Mac are government sponsored enterprises
• Government shutdown will not be affected by the shutdown
• Department Of Veterans Affairs
• Fortunately, Department of Veterans Affairs is not going to be affected by the partial government shutdown

GCA Forums Mortgage News will keep our viewers up to date with the latest news on how the government shutdown affects mortgage lending. Stay tuned!!!