How We Gauge Trends: Key Metrics
Mortgage application volume / refinance & purchase loan originations – How many mortgages are being applied for, approved, and closed, both for government‑backed and conventional loans.
Processing times / closing times – How long it takes from application to closing, and whether a shutdown introduces delays in verification, approvals, underwriting or funding.
Loan‑delivery bottlenecks / underwriting backlog – Whether lenders face backlogs due to deferred federal agency functions (e.g., income verification, flood insurance, veteran eligibility).
Sector segmentation – conventional vs government‑insured (FHA/VA/USDA) vs GSE‑guaranteed (Fannie/Freddie) loans – Some parts of the mortgage market are more exposed to federal‑agency disruptions.
Regional or lender‑type variation – Some lenders or geographies with greater reliance on government‑backed loans or services (flood zones, rural areas) may face more disruption.
Secondary market liquidity / investor confidence – How the shutdown affects the broader market that purchases or guarantees mortgage loans, and whether it influences rates or spreads.
Policy/agency announcements / temporary waivers – What guidance or exceptions federal entities or GSEs issue during a shutdown to keep the system functioning.
By tracking those metrics, we can assess: Are closings being delayed? Are rates or spreads being impacted? Is the supply of loans backing up? Are borrowers facing more friction or cost?
Fannie Mae, Freddie Mac & the Shutdown: What’s Actually Affected?
Are Fannie Mae and Freddie Mac “closed”?
A common question is whether Fannie Mae and Freddie Mac shut down during a government shutdown. The short answer: no, they are not required to shut down simply because Congress fails to appropriate funds.
Fannie Mae makes clear that it is not a government agency; it continues operations during a federal shutdown.
Freddie Mac similarly states that it will continue “normal operations without interruption during a temporary federal government shutdown.”
While these GSEs aren’t shut, their operations depend indirectly on certain federal‑agency services and verification processes (e.g., IRS tax transcripts, flood insurance, VA/USDA certifications) — so they may be impacted by disruption elsewhere.
Therefore, while Fannie and Freddie stay open for business, some portions of the mortgage pipeline can experience delays or bottlenecks due to associated federal agency furloughs or suspensions.
Does the shutdown impact mortgage closings?
Yes—though the impact tends to be modest in many cases, for most borrowers. The degree of disruption depends on loan type (conventional vs government‑insured), location (flood‑zone, rural, veteran), and how long the shutdown lasts.
Impacts to watch:
For conventional loans (those backed by private lenders and often guaranteed by Fannie/Freddie): Most operations proceed fairly normally since the GSEs are open. However, if verification steps that rely on federal agencies (e.g., tax transcript via IRS Form 4506‑T) are suspended, that adds risk or delay.
For government‑insured loans (e.g., Federal Housing Administration (FHA), Department of Veterans Affairs (VA), USDA Rural Development): These are more exposed. The agencies may furlough staff, delay certifications or new commitments, or reduce services.
Flood insurance / National Flood Insurance Program (NFIP): In flood‐zone properties requiring federally‑backed flood insurance, the shutdown may halt new policies or renewals, which can delay closings.
Employment/income verification for federal workers: If the borrower works for the federal government or is employed by a contractor which is impacted, verification may be more difficult, delaying underwriting.
Backlog & processing strain: Lenders may need to implement alternate verification procedures (manual checks, reserves requirements) which can increase turnaround time and cost.
In short: It’s not that the mortgage market grinds to a halt, but a government shutdown can introduce friction, delays, and added risk—especially for certain loan types, geographies or borrower profiles. If the shutdown is short‑lived, the effects are typically contained. If prolonged, the risks and delays become more meaningful.
Price Trends: Still Functioning, But Under Pressure
While this article is focused on mortgages rather than home‑pricing per se, it’s helpful to draw an analogy: just as in a housing market we look at prices, inventory, time on market, etc., in the mortgage market we consider the equivalent stress points. The price‑trend section below adapts the format to the mortgage industry context.
Statewide & Broad Patterns
Across the U.S. mortgage industry, despite a government shutdown, most conventional loan originations continue, underwriting is functioning, and the GSEs remain open. But some stress lines are emerging.
Conventional mortgage flows continue, because Fannie and Freddie continue to operate; hence many closings still happen albeit possibly with small delays.
Some lenders report increased caution: because federal verification services are disrupted, lenders may elevate reserve requirements or require alternate proof of income/employment (see below).
The key risk is not a complete stop but delay and added cost/risk. A shutdown can reduce throughput, broaden spreads, or slow closings, which may reduce originations in weaker segments.
Therefore, the broad pattern is one of resilience but not invulnerability: the industry is still functioning, but certain sub‑segments are under pressure from added friction.
Regional / Segment Variation
Just as home‑price growth differs regionally, mortgage‑processing stress will vary by geography and loan type.
Flood‑zone areas / coastal markets: Buyers in high‑risk flood zones are more exposed if NFIP policies cannot be issued or renewed because of the shutdown. That can delay closings in affected areas.
Rural areas / USDA markets: Loans via USDA Rural Development are vulnerable because those direct or guaranteed loans may halt.
Veteran buyers (VA loans): While the VA strives to continue operations, a partial shutdown may slow certification, funding or processing.
Federal‑employee households / contractor‑employed borrowers: Income verifications may become more complex, especially if payrolls are delayed or employment verification systems are impacted.
Large originators focused on government‑backed business: Lenders with heavy FHA/VA/USDA exposure may see larger delays and backlog.
What This Means
Conventional‑loan borrowers are least exposed to shutdown‑related delays, but still should watch for verification‐related friction.
Government‑loan applicants should ask their lenders about contingency planning and expected closing delays if the government remains shut for an extended period.
Real‑estate agents working with buyers should build in potential extra time for closings in affected geographies.
Lenders should review their underwriting procedures (reserves, alternate verification, flood‑insurance alternatives) and communicate to borrowers proactively.
Inventory, New Listings & Supply Side
Processing Capacity & Underwriting Supply
Just as housing inventory is constrained, the mortgage industry has operational “inventory” or capacity: underwriters, closers, verification systems, approval pipelines, etc. A government shutdown constrains this “supply.”
During a shutdown, federal agency services such as tax transcript processing (IRS), social‑security number verification, flood insurance issuance, and federal employment verification may slow or pause. That reduces the “throughput” capacity for lenders.
For example, if the IRS suspends providing tax return transcripts, lenders may not be able to finalize approval or delivery to the GSE. In prior shutdowns this has occurred.
Lenders may respond by applying more stringent manual verification or requiring increased reserves — which slows processing and reduces volume.
New Applications (Listings)
The “inflow” of new mortgage applications may also be affected.
Borrowers may delay applying if they anticipate closures or verification risk. For instance, some buyers may hesitate to go under contract if they fear closing delays.
Real‑estate professionals survey data (past shutdowns) show that a portion of agents reported delayed contract signings or closings due to shutdowns.
Months of Supply / Backlog
Analogous to months of supply in housing (how many months of inventory exist), there can be a “pipeline backlog” in mortgage processing: unclosed loans waiting in system, or applications pending verification.
If verification services stall, closing dates may be pushed, increasing the time from application to funding and creating a backlog.
Lenders may temporarily pause new originations in high‑risk segments until backlog clears—or charge higher pricing or stricter underwriting.
Sales Volume & Market Activity (Mortgages)
Closed Loans & Volume
If a shutdown delays approvals (especially of government‑insured loans), closures may fall or shift timing. Some closings may slip into the next month.
For conventional loans guaranteed by Fannie/Freddie, since the GSEs are operational, closures should largely continue – but input delays (tax transcripts, flood insurance) could delay some.
Lenders with heavy FHA/VA/USDA business may see more pronounced volume drops during a shutdown.
Timing Effects
Some closings may be postponed, which can shift volume across calendar months, potentially compressing or back‑loading activity when the shutdown ends.
Longer processing times may reduce the total number of loans closed in a given period—even if demand remains stable.
Potential Secondary Market Effects
If mortgage backing, securitization or guarantee flows are disrupted (e.g., GSEs relax rules, impose alternate documentation, increase reserves) that may slightly increase cost or spread for lenders, perhaps passed to borrowers.
Investor confidence may be somewhat shaken if federal agency support or verification systems are impaired longer‑term.
Time to Closing / Processing Speed: How Long Loans Are Lingering
Just like Days on Market (DOM) in real estate, in mortgages we pay attention to processing time from application to closing and any elongation of that time due to shutdown.
In prior shutdowns, most real‑estate professionals reported no major impact; e.g., a 2019 survey by the National Association of Realtors found 75 % said a shutdown had no impact on contract signings or closings.
However, delays did occur in some cases: tax transcript (IRS) delays, flood‑insurance issuance delays, employment verifications.
Specific Areas of Extended Time
Borrowers in flood‑zones requiring NFIP policy issuance may see longer times to closing if NFIP is suspended.
Borrowers with federal employment or highly federal‑contractor exposure may need alternate employment/income verification, which adds time.
Lenders may require stronger reserves or defer applications if federal agency risk is high, prolonging underwriting.
What to Expect
For most conventional applicants in non‑flood zones working in non‑federal jobs: expect closings to proceed fairly normally, but ask the lender about verification timeline.
For borrowers relying on government‑backed programs (FHA/VA/USDA) or with flood‑zone requirements: plan for possible extra days (or even weeks) of processing or contingencies.
Real‑estate agents: advise clients about potential delays in contracting, closing, and funding during a shutdown, especially if the property is in a sensitive zone.
What’s Driving These Trends & Risks Ahead
Verification Dependencies & Bottlenecks
Many underwriting steps rely on federal agency services: IRS tax transcripts, Social Security number verifications, flood‑insurance policies (NFIP), VA/USDA certification. When these services slow, the pipeline chokes.
Lenders may develop work‑arounds (manual verification, alternate documentation), but these are slower and riskier.
An extended shutdown increases risk of error, fraud, or underwriting omissions, raising exposure for lenders and secondary‐market investors.
Affordability & Rate Pressures
While the shutdown doesn’t inherently change interest rates, delays, uncertainty and added underwriting cost might increase spreads or cost to borrowers slightly. Some lenders may raise pricing or tighten underwriting.
If a shutdown drags on, the broader economy may slow—reducing housing or mortgage demand, which could feed into higher risk premiums.
Supply of Capital & Secondary Market Risk
The mortgage market is tightly integrated: lenders originate loans, sell to GSEs or investors; those entities depend on stable operations. If the GSE backlog increases, or investor confidence falters, availability of capital for loans could tighten.
While Fannie/Freddie claim continuity, new temporary policies during a shutdown (e.g., relaxed rules, reserve requirements) suggest they are adjusting.
A prolonged outage of key verifications or flood‑insurance services could mean lenders hold loans longer, increase reserves, or reduce appetite—which could slow originations.
Regional & Segment‑Specific Risk Factors
Properties in flood‑zones or areas requiring NFIP policies are at higher risk of delay or closing fallout.
Rural/USDA markets are more exposed because USDA loans are directly tied to the federal agency’s ability to issue commitments.
Lenders with heavy portfolios of FHA/VA/USDA may face more operational risk and backlog, increasing their cost or reducing their originations.
Borrowers employed by federal agencies, contractors, or in federal service may face verification/ payroll uncertainty during furloughs.
Duration Matters
A key risk: the length of the shutdown. A short shutdown (days) may cause minor delays or “hiccups.” A multi‑week or multi‑month shutdown introduces deeper backlog, mounting risks, possibly higher cost or broader refinancing impacts.
Policy Response & Temporary Guidance
The GSEs issued temporary guidance for lenders during shutdown – e.g., Fannie’s Lender Letter LL‑2025‑03 outlines modifications to selling/servicing policies during the shutdown.
Lenders may need to meet increased reserves or alternate employment verification for borrowers impacted by the shutdown.
These adjustments help maintain flow but also add complexity and may raise cost or underwriting time.
What to Watch & What It Means for Borrowers, Lenders & Investors
For Borrowers (Homebuyers & Refinancers)
Ask your lender about verification dependencies – If you are using a government‑insured loan (FHA/VA/USDA) or your property is in a flood zone, ask whether the shutdown might delay closing.
Allow extra time – Build in a cushion for closing. Even if everything is nominally normal, underwriting or document verification may take longer.
Ensure income/employment documentation is strong – If you work for a federal agency or contractor, or live in a region dependent on federal employment, make sure your lender understands your employer status.
Consider alternative loan types – If you are heavily exposed to a government‑backed loan program and concerned about delays, ask your lender if a conventional loan is feasible. Conventional loans may have fewer dependencies on federal agency services.
Know the risk is more about delay and cost than cancellation – Most conventional closings will still occur; the key is managing expectations and planning accordingly.
Check flood‑zone/flood‑insurance status – If the property is in a flood‑zone requiring an NFIP policy, verify that issuance/renewal will not be blocked by the shutdown. If it is, ask about private flood‑insurance alternatives.
Track closing contingency – If your contract has a closing date tied to funding, be sure you understand whether a shutdown might cause your funding date to move—and whether you have a contingency for that.
For Lenders & Mortgage Industry Professionals
Inventory/processing pipeline management – Monitor backlog, underwriting capacity, verification lags, and be ready for slower turn‑times.
Underwriting policy adjustment – Use the temporary guidance (from Fannie/Freddie, FHA, VA) to adapt for shutdown conditions—e.g., increased reserves, alternate verification.
Communicate clearly with borrowers and real‑estate partners – Set realistic closing timelines, advise on potential risks, offer alternative loan products.
Segment risk by loan type – Evaluate your exposure to FHA/VA/USDA loans, flood‑zone properties, federal‑employee borrowers, and plan for the incremental risk of delays or cost.
Cost implications – Additional verification, extended processing times, or backup documentation may raise operational cost. Lenders may need to reflect that risk in pricing or underwriting policy.
Secondary market scrutiny – Ensure that loans sold or delivered to GSEs remain compliant even under modified guidance. Monitor any temporary policy changes from Fannie/Freddie and adjust pipeline accordingly.
Scenario planning – What if the shutdown lasts weeks? Plan for potential surge when federal verification systems reopen, increased backlog, staffing strain and maybe higher refinance demand once clarity returns.
For Real‑Estate Professionals & Brokers
Set expectations for closing timelines – If your buyer’s loan type is exposed to delay, inform the seller and consider allowances or contract terms accordingly.
Focus on properties with lower closing risk – If multiple offers involve buyers needing USDA, VA or flood‑zone policies, those may carry higher closing risk.
Encourage strong pre‑approval / alternate financing paths – Buyers with conventional loans and strong documentation are less exposed to shutdown‑related delay.
Monitor local exposure – In regions with many federal employees, contractor firms, military bases, or flood‑prone properties, closing risk may be elevated.
For Investors, Servicers & Housing Finance Market Observers
Pipeline rate risk – Slowdowns can lead to pipeline risk, lock‑expiration risk, or higher cost of funds for originators.
Credit risk review – Extended processing time increases risk of job loss, income change or other deterioration — servicers and investors should monitor risk of underwriting slip.
Liquidity readiness – Investors in mortgage‑backed securities (MBS) should watch for any disruption in delivery volumes, guarantee flows or investor sentiment caused by shutdown‑related bottlenecks.
Macro‑economic interplay – A prolonged shutdown could affect broader economy (consumer spending, employment), which in turn affects housing demand and mortgage performance.
Policy/regulatory eye – Watch for further guidance from GSEs, FHA/VA and Treasury/FHFA. Also monitor any legislative resolution timeline—short shutdowns tend to cause minimal harm; long ones may trigger more systemic strain.
A government shutdown—at least a modest one—does not mean the mortgage market stops. Conventional lending via Fannie Mae and Freddie Mac continues; most borrowers will still close loans. But the real story is about friction: slower verifications, backlog risk, added operational complexity and potential delays, especially for certain loan types or in specific geographies. It is important to know your loan type, ask about verification/closing risk, and build in some buffer for time and contingency. The mortgage market can withstand a shutdown, but it rewards those who anticipate friction rather than ignore it.
