Black Swans Everywhere: Baseline Chaos 2025 — Flood Insurance & Federal Worker Fallout in the Government Shutdown
“Time is running out on federal programs, and with each day of the shutdown, uncertainty spills into mortgage rates and borrower confidence.”
🌀 Net News Update — October 17, 2025
Not much has changed at the top level — Congress remains in a standstill — but the ripple effects continue to reach deeper into day-to-day lending.
The most notable development this week: USDA home loans are now officially on hold.
Because of the shutdown, agency staff are furloughed, which means no new USDA loan guarantees or closings are being processed for rural housing programs. Borrowers already in the pipeline may experience delays or temporary suspensions until funding authority is restored.
🚨 Critical Watch Items — Mortgage Impact October 10, 2025
1️⃣ IRS Furloughs Deepen → Transcript Delays Worsen
Roughly half the IRS workforce is furloughed. That directly slows or stalls Form 4506-C tax transcript requests and VOE (verification of employment/income) pipelines.
➡ Effect: Delayed loan approvals and post-closing QC for lenders.
2️⃣ NFIP Lapse Blocking Flood-Zone Closings
The National Flood Insurance Program remains unauthorized. No new or renewal policies can be issued. Existing policies stay active for now.
➡ Effect: Properties in flood zones can’t close without proof of active coverage.
3️⃣ FHA / VA / USDA Turn Times Rising
Agency staff are thin, and contingency staffing is causing multi-day slowdowns. FHA case numbers, VA verifications, and USDA guarantees are all taking longer to process.
➡ Effect: Bottlenecks on government-backed loans and longer contract-to-close times.
4️⃣ OMB Signals No Guaranteed Back Pay for Furloughed Federal Workers
While not policy yet, the uncertainty adds risk to DTI calculations and loan eligibility for affected borrowers.
➡ Effect: Some lenders may adopt more conservative underwriting until it’s resolved.
5️⃣ Legislative Gridlock Extends Timeline
No progress toward reopening. Each additional week compounds staffing backlogs and risk exposure for lenders managing rate locks or closings.
➡ Effect: Rising probability of expired locks and rescheduling costs on pipeline loans.
🌀 Net News Update October 6, 2025
Fannie Mae put out this guidance back on October 1, but most of us figured the shutdown would blow over fast — so it didn’t get much attention. Now that things are dragging on, it’s worth a closer look.
These updates mainly affect Conventional loans, and they can change anytime as the situation evolves.
If you already have a mortgage, check with your servicer about what this means for payments or forbearance.
If you’re in the middle of a loan, keep talking with your loan officer and real estate agent about options and timing.
Short version: Things are still moving, just slower — and flexibility depends on your lender.
📝 Key Points -Fannie Mae Shutdown Guidance (LL-2025-03, Oct 1)
Context: Many of us assumed the shutdown would be short. Now it looks longer, so this matters more.
VOE Flexibility: If you can’t get a verbal verification of employment (VOE) because of the shutdown, document your attempts — Fannie Mae allows waiver in those cases.
Paystubs: Waiving the 30-day freshness rule. You still need the most current paystub with YTD earnings.
Reserves Trigger: If the shutdown lasts beyond Nov 3, borrowers will need at least 2 months’ reserves (or whatever DU/guide requires).
IRS/SSA Verifications: Delays expected. Fannie Mae allows loans to close without transcripts in hand, but transcripts must be obtained for post-closing QC.
Servicing: Borrowers missing payments due to furloughs can be offered forbearance under existing guidelines.
⚠️ Important: This is Fannie Mae’s position. Your actual lender or investor may be more conservative — some may flex, others may be extra rigid.
🔔 Update: October 4, 2025
Today’s net-new updates (10/4): House out until 10/14; 48-hour recall only; Oct 15 pay date pressure; GOP centrist pushback grew; furlough counts firmed up
House: no votes next week; out until Oct 14. Speaker Mike Johnson canceled votes and said he’ll give 48 hours’ notice only if the Senate produces something to take up. Politico
Pressure date flagged: GOP leadership is pointing to Wed Oct 15 (first missed active-duty military pay) as a leverage/pressure point. Politico
Internal GOP friction increased: More centrist Republicans publicly warned that the current shutdown tactics are damaging trust and complicating any bipartisan deal. Reuters
Federal workforce snapshot updated: Reporting today pegs ~750,000 furloughed with growing strain across agencies; contractors remain especially exposed. The Washington Post
🔔 Update: October 3, 2025
The shutdown is beginning to bite harder. Two developments matter for mortgages:
Economic Data Blackout: The Labor Department has canceled today’s jobs report. With no employment or inflation data feeding into markets, traders are flying blind — and that translates into more rate volatility. Even without direct agency delays, borrowers may see rate sheets swing more wildly than usual.
Federal Programs Under Strain: Beyond flood insurance, other federal funding streams are showing cracks. The Women, Infants & Children (WIC) nutrition program is projected to run out of funds in 1–2 weeks, and the National Nuclear Security Administration says its safety operations could hit a cash wall in just over a week. These don’t directly halt mortgages, but they add to overall economic uncertainty — which feeds directly into stocks, bonds, and mortgage rates.
For borrowers, the message hasn’t changed: stay proactive on flood insurance renewals and stay close to your lender if you’re a federal worker. But the background noise of this shutdown is getting louder, and that means mortgage markets may stay more jittery than in past shutdowns.
Introduction
First Article written 10/1/2025 - I plan to update as needed Another government shutdown has arrived, and while we’ve seen these before, 2025 feels different. In the last major shutdown (2018–2019), borrowers faced delays with IRS transcripts, Social Security checks, FHA case numbers, VA verifications, and USDA underwriting. This time, two issues stand out with even greater urgency: furloughed federal workers and flood insurance coverage lapses.
Federal Workers: Income Verification Roadblocks
For most conventional loans, the shutdown won’t completely stop closings. But for government employees, furloughs create a serious problem.
Lenders must verify stable income before approving or closing a loan. A furlough — even if temporary — can cause underwriters to flag the income as “unstable,” delaying or jeopardizing approval.
FHA, VA, and USDA loans face an even steeper climb. These loans often require human review at the agency level, and with staff furloughed, critical steps like case number assignments or eligibility confirmations may stall.
The result? Federal workers are facing both personal income verification challenges and slower agency processing at the same time.
Flood Insurance: The Biggest Bottleneck
The larger and more immediate issue is flood insurance.
During a shutdown, the National Flood Insurance Program (NFIP) cannot issue new policies or renew expiring ones. That creates a hard stop for closings in flood zones because:
New buyers can’t get required coverage.
Homeowners with expiring policies can’t renew.
No exceptions exist. Lenders are legally required to maintain continuous flood coverage.
If a policy lapses, lenders are forced to “force-place” insurance. This coverage is more expensive, protects the lender’s interest more than the borrower’s, and raises monthly costs — all through no fault of the borrower.
What Borrowers Should Do Now
This is where being proactive matters.
✅ Check your flood insurance expiration date immediately.
✅ Call your loan servicer before your policy expires. Ask:
Do you offer a grace period?
Can I use private flood insurance temporarily?
How will force-placed coverage work if NFIP stays frozen?
Document every call and keep written proof of your renewal attempt. If Congress restores NFIP later, you can switch back and cancel the costly force-placed policy.
Why 2025 Is Different From 2018–2019
This isn’t just a repeat of the last shutdown. Several factors make 2025 more disruptive:
Deeper staffing cuts: Agencies and lenders entered this year already lean. Furloughs stack onto earlier layoffs.
No economic data releases: Without jobs reports or inflation updates, markets are flying blind. That increases rate volatility.
Federal Reserve timing: Unlike 2018–2019, the Fed may be cutting rates during this shutdown, creating additional uncertainty.
Flood insurance risk: With more homes in flood-prone zones and higher awareness from lenders, lapses will bite harder than last time.
Put simply: rare disruptions aren’t rare anymore. They’re baseline chaos.
Final Word
For most conventional borrowers, the impact will be minor. But for federal workers and anyone tied to flood insurance, this shutdown could cause real delays, added costs, or stalled closings.
You can’t control political gridlock, but you can control preparation. Stay in close contact with your lender, check your flood policy dates, and reach out to your servicer before you hit expiration. In times of baseline chaos, the most prepared borrowers fare best.
🧾 Borrower FAQ: Government Shutdown 2025 (Updated)
Q: If I’m a government worker on furlough, will my mortgage be denied?
Not automatically. Fannie Mae guidance says furloughed borrowers can still qualify if income was documented before the shutdown. Some lenders may pause or re-review applications depending on risk tolerance. Stay in close touch with your loan officer.
Q: My flood insurance policy is expiring. What should I do?
Call your loan servicer right away. Ask about grace periods, private coverage options, or what force-placed insurance would mean. Keep written notes of every attempt to renew — documentation matters.
Q: Can I close on a home in a flood zone without insurance?
No. Closings can’t happen without proof of active flood coverage. If the National Flood Insurance Program (NFIP) stays paused, your closing may need to be delayed or restructured.
Q: What if my servicer force-places insurance during the shutdown?
Expect higher monthly costs. Once NFIP resumes, you can usually switch back to standard coverage and request refunds for any overlap.
Q: Will this shutdown affect mortgage rates?
It could. With fewer economic reports released, markets are jumpier. Some analysts expect more rate volatility until government data and spending return to normal.
