Government Shutdown 2025: What It Means for the Mortgage Industry
- Alexi Mencio
- Oct 2, 2025
- 3 min read
On October 1, 2025, the U.S. federal government entered a shutdown following Congress’s failure to pass new funding legislation. (Wikipedia)
While many essential services continue, the shutdown introduces complications in areas dependent on federal funding — including parts of the mortgage and housing markets. In this post, we break down how a government shutdown may affect borrowers, lenders, and housing professionals.
Key Mechanisms of Disruption
Here are the primary ways the shutdown is expected to ripple through the mortgage industry:
Flood Insurance / NFIP Lapse
The National Flood Insurance Program (NFIP) is set to expire unless Congress reauthorizes it. (AP News)
In flood-prone areas, many mortgage closings require flood insurance. If new policies or renewals are halted, some home purchases might stall. (CBS News)
Lenders and underwriters may refuse deals that depend on NFIP coverage if they lack certainty on policy status.
Delays in IRS / Tax Transcript Verifications
Many mortgage loan approvals rely on IRS tax transcript services and federal income verifications. With government offices partially furloughed or closed, these services may be slowed or paused. (CBS News)
This can create bottlenecks in loan underwriting and closings.
Fannie Mae / Freddie Mac Operations & Policy Adjustments
Although Fannie Mae and Freddie Mac are government-sponsored enterprises, they are not direct federal agencies and are likely to continue their operations. (Fannie Mae)
However, these entities rely on certain federal systems and oversight functions, so their operations may be affected indirectly. Fannie Mae has already published temporary guidance for single-family selling and servicing that becomes effective under the shutdown. (Fannie Mae)
Behavioral / Market Effects & Investor Sentiment
Shutdowns typically stir uncertainty in financial markets. In times of stress, investors often seek safe assets like U.S. Treasurys, driving bond yields down, which can in turn push some mortgage rates lower. (Better Mortgage)
But the net effect is unpredictable — rate drops may be modest and offset by risk premiums or volatility.
Staff Furloughs in Key Agencies
Agencies tied to housing programs (e.g. HUD, OMB) may see reduced staffing or capabilities during a shutdown. (RISMedia)
This could slow approvals, oversight, or implementation of regulatory changes.
How Borrowers Could Be Affected
Issue | Potential Impact |
Delays in closing | If flood insurance cannot be validated or tax transcripts are unavailable, closing may be postponed. |
Uncertainty in rates | Sudden rate fluctuations or spread widening may affect the locking strategy. |
Financing risk in flood zones | Properties in flood zones are particularly vulnerable if NFIP lapses. |
Reduced liquidity/caution | Some lenders may tighten underwriting in uncertain periods. |
VA / FHA / HUD-linked programs | While many FHA and VA programs continue, certain aspects may face slower processing. (National Association of REALTORS®) |
If you're applying for a mortgage or are close to closing, here’s what to watch out for.
What Lenders & Brokers Should Do Now
Monitor NFIP status closely — advise clients in flood zones that delays may occur.
Communicate openly with borrowers about possible delays or verification issues.
Lock rates decisively when favorable — but include contingencies for delays.
Plan for flexibility — extend rate lock periods or include buffer days.
Review internal processes for alternative verification paths when federal systems are unavailable.
Stay updated on agency guidance — e.g. Fannie Mae’s shutdown guidance is now live. (Fannie Mae)
The mortgage industry has weathered government shutdowns before. The exact effects depend on the length of the shutdown, how Congress and federal agencies respond, and how markets interpret the stress.
For now:
Mortgage processing will continue, though some steps may slow.
Rate movements may be modest and volatile.
Properties in flood zones or those requiring federal verification are at higher risk for delay.
At Trust Lending, we are closely monitoring developments and are ready to help borrowers and brokers navigate this uncertain environment. If your deal depends on federal services, or you want help structuring contingencies, we’re here to assist.
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