The Impact of a Government Shutdown on Mortgage Lending

A message from John Haring, Wilqo's Head of Compliance:

If you've been following the news, the government has “shut down”. While the political debate can feel distant, a shutdown can have a very real impact on the mortgage process.

Here’s what mortgage professionals should know and prepare for in case we enter another period of government inactivity.

1. Fannie Mae and Freddie Mac: Business As Usual

The good news? Fannie Mae and Freddie Mac are not funded through annual appropriations. That means they're typically unaffected by government shutdowns. Loans that are being sold or securitized through these entities should continue processing as normal.

2. HUD, FHA, and Ginnie Mae: Reduced Capacity

These agencies do rely on federal funding and often operate with reduced staff during a shutdown. While key systems like FHA Connection remain available, several important processes get put on hold:

• No condo approvals will be issued
• HECM loans (reverse mortgages backed by FHA) will be suspended
• Loans underwritten directly by HUD/FHA will be delayed
• Support requests may be delayed or suspended entirely

Be prepared for longer turnaround times and slower communication from HUD-related programs.

3. VA Loans: Mostly Operational

The Department of Veterans Affairs has historically been able to operate during short shutdowns, so VA loans may continue to process. However, staffing reductions can still lead to delays in response times and processing bottlenecks, especially if the shutdown drags on.

4. USDA Loans: Full Stop

USDA loan programs typically come to a hard stop during a shutdown. That means no new loans will be reviewed, and borrowers will not be able to close on USDA-backed loans. Lenders working with USDA files should prepare borrowers for potential delays or pivot to alternative programs if time-sensitive.

5. National Flood Insurance Program: Expiration Risk

The NFIP (National Flood Insurance Program) is set to expire during a shutdown unless extended. Without renewal:

• No new flood insurance policies can be issued
• Existing policies cannot be renewed
• Borrowers in flood zones may need to pursue private flood insurance, which often comes with higher premiums that can disrupt DTI ratios and loan qualification

6. Verification Delays: SSA and IRS

Automated systems used to verify Social Security Numbers and tax return transcripts (4506-Cs) may still function, but any request that requires manual review will likely be delayed until the shutdown ends.

This can be a big bottleneck if your LOS flags a mismatch or incomplete data and you’re waiting on a human to review the issue.

7. Federal Employees: Income and Employment Verifications

Borrowers who are federal employees may face challenges proving continued employment or consistent income. This can delay verbal verification of employment (VOE) steps, which are usually required just prior to closing.

What You Can Do Now

Here are a few steps mortgage professionals can take to prepare:

• Prioritize files that are dependent on FHA or USDA approvals.
• Communicate early and clearly with borrowers about possible delays.
• Explore alternatives, like private flood insurance or different loan programs, when necessary.
• Stay in close contact with your compliance and closing teams to adjust timelines as needed.

In Summary

Not all shutdowns are the same. What remains operational will depend on what each agency deems an “essential service.” But even a short-term shutdown can introduce hiccups into your loan pipeline. With awareness and preparation, you can help borrowers navigate the uncertainty and keep your team aligned.