Congress did not come to a budgetary agreement before midnight on Oct. 1, causing a government shutdown that means the suspension of many non-essential governmental services.
When the federal government shuts down, the effects can impact some aspects of the mortgage loan process. While many operations continue, disruptions might slow down loan processing.
It’s important for borrowers to have a clear understanding of how significant events like a government shutdown can impact their mortgages. Below, we break down the key impacts on new mortgages, refinances, and existing loans:
Impact on New Mortgage Applications
For borrowers applying for a new mortgage, the effect of a government shutdown often depends on how long the lapse lasts. In the short term, most loans can still move forward, but certain bottlenecks may arise:
- FHA Loans: The Department of Housing and Urban Development (HUD) continues processing some FHA loan types during a shutdown, though staffing limitations may extend timelines.1
- VA Loans: The Department of Veterans Affairs (VA) maintains its loan origination role, but service may be slower than usual.1
- Conventional Loans: Fannie Mae® and Freddie Mac®, though government-sponsored, remain operational. However, lender reliance on government functions and documentation may indirectly contribute to delays.2
- Flood Insurance Requirements: Borrowers in FEMA-designated Special Flood Hazard Areas (zones A or V) must maintain flood insurance. During a shutdown, the National Flood Insurance Program (NFIP) cannot issue new policies, potentially stalling closings unless private insurance is acquired.1
Impact on Existing Mortgages
For Borrowers Who Are Federal Employees: If you’re a government worker, your employment may be impacted by the shutdown.3 If delays or changes in your income are affecting your ability to make your mortgage payments on time, Newrez carries several alternative payment plans designed to help you minimize the negative effects of falling behind on your payments. Learn more in this article.
Social Security and VA Benefits: These essential programs typically continue disbursing funds during a shutdown, though some services may experience delays, which could impact a recipient’s ability to make on-time payments.4
What Borrowers Should Do
1. Stay in Contact with Your Lender
Notify us immediately if you anticipate payment difficulties. Early communication helps us provide you with timely access to forbearance or loan modification programs.
2. Plan for Processing Delays
Expect slower timelines when IRS or other government verifications are required. Build in extra time if you’re planning a home purchase or refinance.
Newrez Is Here to Answer Questions
If you have any questions about your current loan or your loan application, feel free to reach out to us for more information.
Fannie Mae® is a registered trademark of the Federal National Mortgage Association. Freddie Mac® is a registered trademark of the Federal Home Loan Mortgage Corporation.
References:
1 Possible Government Shutdown: What You Need to Know
3 What does it mean to be furloughed during a government shutdown?
4 How government shutdown will impact Social Security, SNAP, VA benefits
