The possibility of a federal government shutdown looms, with Sept. 30 the deadline to strike an agreement. The most immediate impact would be to the millions of civilian federal employees who will be furloughed and face the possibility of missing paychecks while the shutdown is in effect. More indirectly, a shutdown would likely slow down an already slow mortgage approval process, leaving thousands of aspiring home buyers in limbo while processing of their federally-insured loans — such as Federal Housing Administration (FHA) loans — are delayed. 

An estimated 2,528 mortgage originations per working day are at risk of delays with a shutdown. [1] These are originations for loans backed directly by federal government agencies, including the FHA, Rural Housing Service (RHS) and Farm Service Agency (FSA). 

When those loans are delayed, it disproportionately affects those facing the greatest hurdles to become homeowners, including Black home buyers. About a quarter of all loan originations for Black mortgage borrowers are FHA, RHS or FSA loans, compared to 9% of originations for white mortgage borrowers. [2]

Despite the disruption, the impact to mortgage rates of a brief shutdown is likely to be modest, barring other unforeseen and unrelated events. A prolonged shutdown may delay the release of federal economic data, which would cloud the Federal Reserve’s view of the current state of the economy, further complicating their ability to set policy. The Federal Open Market Committee – the Fed’s policy-setting arm – is set to convene again at the end of October.

A large number of Department of Housing and Urban Development (HUD) staff will be furloughed. This could slow down the administration of many of HUD’s programs such homelessness funding, voucher programs, and fair housing enforcement. 

Though many federal agencies have released “Agency Contingency Plans” outlining how they will operate during the shutdown, much uncertainty still remains. With each passing day, backlogs will grow larger and the negative impacts of the shutdown will worsen.  

The bottom line is clear: a government shutdown will present a dizzying number of challenges for the public to overcome. Like the potential debt default from earlier this summer, the best outcome for consumers is for the government to function in a consistent and effective manner. 

[1] Assuming loan originations are processed at the same rate as in 2022. In Q4 of last year, 140,888 single-family FHA loans were originated over 61 working days, for an average of 2,310 per day. In 2022, there were 54,603 FSA or RHS loans originated over 250 working days, for an average of 218 per day.
[2] According to 2022 Home Mortgage Disclosure Act data