Homebuyers who depend on FHA and VA and loan programs may experience slower approvals, while processing of USDA loans is on hold for the duration of the federal government shutdown, policy experts at the National Association of Realtors say.
The Department of Housing and Urban Development (HUD) announced on the first day of the Oct. 1 shutdown that some Federal Housing Administration (FHA) operations and systems will remain operational, but with limited services.
In departments where FHA staff are not considered essential workers, “you could see that fewer staff are there and available, and they’re slower to process loan endorsements,” NAR Executive Vice President Shannon McGahn told members this week. “That can lead to delays that would hit first-time home buyers and the lower income households the hardest.”
VA loans “are considered essential and they do keep moving,” McGahn said, but veterans could “see those back office operations, eligibility checks or customer service lines that are slowing down.”
Shannon McGahn
USDA rural housing loans “stop completely in a shutdown. There are no new guarantees or processing,” McGahn said. “So this disproportionately affects rural communities when USDA is often the only affordable option for them.”
FHA, USDA and VA loans account for about one in four mortgage applications, Cotality Chief Economist Selma Hepp said, so the shutdown “is likely to constrain the pool of potential homebuyers, especially those reliant on federally backed loans or related services.”
So far, the shutdown doesn’t appear to have had a major impact on homebuyer loan demand. Purchase loan applications fell by a seasonally adjusted 1 percent last week when compared to the week before, but were up 14 percent from a year ago, the Mortgage Bankers Association reported.
With mortgage rates on fixed-rate loans little changed last week, demand for purchase loans continues to show “moderate growth” on an annual basis, with stronger growth for FHA loans favored by first-time homebuyers, MBA Chief Economist Mike Fratantoni said, in a statement.
But Happ also warned of additional “ripple effects that don’t get much attention” that could impact closings, including adminstrative bottlenecks in government services like processing tax transcripts, employment verifications and identity checks.
Mortgage rates near 2025 lows
At 6.29 percent Tuesday, rates on 30-year fixed-rate loans remained near a 2025 low of 6.17 percent registered on Sept. 16, according to lender data tracked by Optimal Blue.
What’s open and closed at FHA
The FHA’s Office of Single Family Housing and some of its mortgage insurance programs “will be operational but with limited services,” HUD said in an Oct. 1 announcement, FHA INFO 2025-49.
Services available during the shutdown, but with limited FHA staff availability and longer waiting times, include:
- Condominium project approvals under the Direct Endorsement Lender Review and Approval Process (DELRAP)
- Manual pre-endorsement actions: resolution of the holds tracking queue (including case number assignments for Single-Unit Approval condominiums); case number transfers, cancellations, and reinstatements for cases that the mortgagee cannot process in FHA Connection and require FHA staff intervention;
- Submissions of Upfront Mortgage Insurance Premiums (UFMIP) for new endorsements;
- Insurance endorsements for Title II Forward mortgages, including Notice of Return (NOR) resubmissions.
Services that will be unavailable for the duration of the shutdown include:
- Condominium Project approvals under the HUD Review and Approval Process (HRAP);
- Endorsement of Home Equity Conversion Mortgages (HECM);
- Endorsement of Title I loans;
- Endorsement of Test Cases;
- Pre-Closing Review and Endorsement of HUD employee loans; and
- Mortgage Insurance Certificate (MIC) corrections.
Flood insurance worries if shutdown drags on
The National Flood Insurance Program (NFIP) expired on Sept. 30, creating headaches for closings in flood zones.
Sellers can assign existing policies to homebuyers and, thanks to a 2022 policy shift, FHA borrowers can also opt for private flood insurance.
McGahn said it’s also important to note that many NFIP staff are paid through policy premiums, “So there are folks who are there, they are working. It’s not that everything grinds to a halt on day one because there’s no one there to even open up the office and check the fax machine.”
But NAR is “very concerned about things slowing down the uncertainty in the market and that if this continues past 30 days, that you could see closings that just are not able to happen.”
During the last federal government shutdown in 2018, Congress approved a standalone NFIP extension that kept sales from being derailed.
If that doesn’t happen this time, McGahn said, “The real world effect is that tens of thousands of closings in flood zones could grind to a halt and that threatens an estimated 1,400 property transactions per day.”
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