What the federal government shutdown means for the mortgage industry

• FHA and VA Loans: Processing and underwriting of new FHA and VA loans may slow down, especially if there is a reduction in available staff or if certain operations are suspended. This could lead to delays in approvals and closings.
• IRS tax transcripts: Many lenders require IRS tax transcripts (4506-T forms) to verify borrower income. If the IRS is operating at limited capacity, obtaining these transcripts could be delayed, potentially slowing down the loan process.
• Economic data releases: If the BLS is unable to release scheduled economic reports, such as inflation or jobs data, market volatility could increase, and lenders may have less information to guide rate decisions. One such BLS announcement is due this week, but now unlikely to arrive as scheduled.
• Rural housing loans: The USDA’s Rural Development loan program may see significant delays, as the agency typically ceases processing new loans during a shutdown.

How about mortgage borrowers? What holdups could they see?

Borrowers applying for government-backed loans (FHA, VA, USDA) may experience longer wait times for approvals and closings. Delays in obtaining IRS tax transcripts or Social Security number verifications could also slow down the process. Those seeking conventional loans backed by Fannie Mae and Freddie Mac are less likely to be affected, as these entities operate independently of federal appropriations. However, uncertainty in the broader market and potential delays in economic data releases could indirectly impact rates and loan availability.

How will the shutdown affect mortgage lenders?

Lenders may face operational challenges, particularly with government-backed loans. Delays in processing FHA, VA, or USDA loans can create backlogs and increase the risk of pipeline fallout. Lenders relying on timely IRS verifications or BLS economic data may also need to adjust their processes or risk models. Additionally, uncertainty in the financial markets due to missing economic data releases can make rate setting and hedging more challenging.

How long could these impacts last?

The duration of the shutdown will determine the extent of the disruption. Short shutdowns may cause only minor delays, while a prolonged shutdown could create significant backlogs and uncertainty in the mortgage market.

What if the president starts firing federal workers instead of furloughing them?

Last week, federal agencies were told to prepare layoff notices for programmes without funding by the deadline and for others not viewed as an administration priority.

It remains unclear what those programs were, but if a scenario arose where the president attempted to fire federal workers instead of furloughing them, the consequences would be far more severe and long-lasting. Permanent loss of experienced staff at agencies like HUD, the IRS, and the VA would cripple their ability to process loans, conduct verifications, and provide essential services even after the shutdown ends.