We’re in week four of the partial government shutdown and it is now the longest shutdown in our country’s history. It really doesn’t look like there will be a resolution to reopen the government any time soon as President Donald Trump is still sparring with Democrats over funding for his border wall. Meanwhile, 800,000 federal workers have gone without a paycheck.

How has the ongoing shutdown impacted mortgage lending?

Well, for one, there’s increased risk. Experts at Moody’s Investors Service issued a note of caution to mortgage lenders of all types, warning of an increase in mortgage delivery risk.

The group explained that disruptions caused by the partial shutdown could potentially lead to modest strains on the balance sheets for nonbank lenders, as well as an increased risk of making bad loans for all lenders.

From the report (parts bolded for emphasis):

The shutdown is negative for all residential mortgage lenders, which face an increased risk of missing red flags on borrower quality, lapses that could lead to loans with higher risk of losses. To replace origination processes that are out of commission or at reduced capacity during the shutdown, lenders will need to create more cumbersome or manual workarounds that may result in errors or, in the extreme case, instances of fraud.

The experts cautioned that lenders may need to develop workarounds to validate Social Security numbers rather than use the government. They also suggested that lenders request tax transcripts directly from borrowers instead of the Internal Revenue Service, stating that despite the IRS reopening and processing requests as of Jan. 7, there is a backlog and a delay in staff.

What do lenders, bank and nonbank alike, do if the shutdown persists? The group writes: 

Additionally, in the event that the shutdown becomes prolonged, this and other government systems that are currently working, such as federal flood insurance, are at risk of shutting down. In such an event, lenders may need to obtain flood insurance from alternative private lenders, a switch that could result in higher costs or, in some cases, the lack of insurance. The shutdown is also negative for non-bank lenders, which currently make up approximately 60% of mortgage originations, because they will be unable to sell a small percentage of their loans (such as loans to federal workers because of the inability to verify their employment) during the shutdown to certain investors such as Fannie Mae and Freddie Mac.

When will the shutdown end? No one knows for sure exactly. Nomura noted in a recent report that as the partial shutdown continues, the likelihood that Trump declares a national emergency to get the border funding increases.

“While unconventional, such an action may provide a relatively quick end to the shutdown with the House and Senate likely moving to pass full-year funding for the affected agencies before sending the bills to President Trump for his signature,” U.S. Chief Economist Lewis Alexander writes.