Federal Government Shutdown Impact on Mortgage Lending

Updated 2026-05-17

A federal government shutdown can significantly impact various aspects of mortgage lending due to the disruption of government agency operations and the financial strain on federal employees and related businesses. Mortgage lenders and servicers must adapt to these challenges, often guided by temporary policies issued by entities like Government Sponsored Enterprise (GSE).

It is critical for lenders and servicers to consult the latest guidance from agencies like Fannie Mae and ensure ongoing compliance with all applicable laws, including TILA's ability to repay standards.

Key Impacts and Mitigations

Borrower Income and Furloughed Borrowers

Federal employees may be furloughed or work without pay, affecting their ability to make mortgage payments or qualify for new loans. A furloughed borrower is an individual on a temporary leave of absence without pay, typically due to a government shutdown. While furloughed, their employment status is considered active, but their income stream is temporarily interrupted.

• Mitigation: Fannie Mae's guidance, such as Fannie Mae Government Shutdown Guidance 2025, clarifies that loans for furloughed borrowers remain eligible if all required income documentation was obtained prior to loan delivery and continues to meet Fannie Mae's age of credit document requirements. The requirements for temporary leave income do not apply to borrowers furloughed due to a government shutdown.

Verification of Employment (VOE)

Obtaining verbal VOE can become difficult if government agencies are closed or understaffed.

• Mitigation: Fannie Mae may waive the verbal VOE requirement under specific conditions, requiring lenders to document attempts and the reason for the waiver. Lenders still warrant employment unless DU validation service is used.

IRS Transcripts

The Internal Revenue Service (IRS) may cease or delay processing requests for tax transcripts (e.g., 4506-c-tax-form), which are crucial for income verification.

• Mitigation: Fannie Mae does not require IRS transcripts prior to closing but expects them for post-closing quality control within 90 days. DU validation service may be impacted by delays in accessing new tax data.

Social Security Number (SSN) Validation

Delays can occur in validating SSNs with the Social Security Administration.

• Mitigation: Fannie Mae requires SSN validation prior to loan delivery for eligibility.

Financial Reserves

Prolonged shutdowns can lead to temporary requirements for increased financial reserves to mitigate income interruption risk for new loan applications.

• Temporary Minimum Reserve Requirement: If a federal government shutdown is still in effect for loans with application dates on or after November 3, 2025, Fannie Mae requires the borrower to have the greater of:
  1. Two months of documented reserves, or
  2. For loan casefiles underwritten through DU, the amount of reserves required by DU (with any applicable overlays from the Selling Guide for specific transactions); or for manually underwritten loans, the amount of reserves required for the transaction per the Eligibility Matrix and the Selling Guide. This temporary policy aims to ensure borrowers have sufficient liquid assets to cover mortgage payments if their income is disrupted and automatically expires when the federal government resumes full operations.

Loan Servicing

Borrowers impacted by the shutdown may struggle to make payments.

• Mitigation: Servicers are authorized to evaluate affected borrowers for forbearance plans, allowing conversion from repayment or trial plans if necessary.

Government-Backed Loans

Programs like the USDA (Rural Development) Section 502 Loan Program must still comply with their specific requirements, which may also be affected by a shutdown.