Loan capital could also flow – but ‘all bets are off’ if the deadlock continues for a longer spell
The combination of the government shutdown, a softening job market, and a potential mortgage emergency declaration from the Trump administration could be setting the stage for a surge in housing market activity.
The shutdown is expected to allow mortgage rates to continue to fall. Effects from the shutdown, combined with worse-than-expected jobs numbers, will likely coerce the Federal Reserve to cut rates again at the end of the month.
However, an extended, protracted shutdown could tell a much different story, according to one analyst.
Eric Hagen (pictured top) is the managing director and mortgage and specialty finance analyst at BTIG. Previously, he served as an analyst at the US Department of the Treasury. He said that in the short term, many of the factors at play are pointing to continued improvement in mortgage rates.
“The momentum for mortgage rates to be lower is high,” Hagen told Mortgage Professional America. “That being said, mortgage spreads in the secondary market have already tightened quite a bit over the last few weeks. Some of the speculation surrounding a housing emergency and what Trump could do to help lower mortgage rates, if that was the objective, has all contributed to mortgage spreads in the secondary market already tightening a lot.”
No hiccups in capital flow
Hagen noted that rate movements over the past few weeks have been significantly smaller, resulting in less overall market volatility.
“Interest rate volatility has come down on top of that, just because the Fed has cut rates,” he said. “I think the punch line is, yes, this shutdown could drive mortgage rates even lower, but over the last month, they've already fallen a little bit more.”
He said that the federal mortgage market is largely protected from the adverse effects of a short-term shutdown. One notable exception would be the Consumer Financial Protection Bureau (CFPB), but its staffing has been reduced to the point that most enforcement efforts are currently taking place at the state level.
“On a more granular level, the government being shut down doesn't really drive a lot of friction in the housing market, or the flow of capital,” Hagen said. “Ginnie Mae has federal employees. CFPB has federal employees, but they've already been effectively dismantled. The GSEs are in this middle ground where they're quasi-private, quasi-public, and they're not on the federal payroll.
“There still could be some friction if the shutdown were really extended. If it lasts just a week or two, I would expect almost no hiccups in the flow of capital. The originators are really focused on lower rates, and the investors are equally focused on the potential for lower rates. And stocks have really run up a lot, like LoanDepot has exploded partly as a result of all this speculation.”
Strong flow of capital
One thing that Hagen can see potentially happening is a housing emergency that President Trump has hinted at issuing to potentially address higher mortgage rates and housing affordability.
“Where we think the rubber really meets the road is with respect to affordability, and that variable changing, we feel like a housing emergency would be aimed at potentially alleviating some of that and improving affordability,” he said. “In some ways, the federal shutdown and the housing emergency and everything we're talking about with the GSEs forthcoming, we see all of those things being connected.”
His message to mortgage brokers is that the housing market is in a good position entering the shutdown, and lower rates can only improve that position.
“I feel like the housing market is stable,” Hagen said. “The folks who are originating mortgages, like all these non-bank mortgage originators that we cover, are in a very strong financial position. We feel like the market overall is healthy. There are elements in the news flow that are sort of disruptive to the macro in some ways, but for the most part, we see the flow of mortgage capital being very strong right now.”
Selma Hepp, chief economist at Cotality, says a government shutdown could trigger recession fears and a flight to Treasuries—potentially pulling mortgage rates lower. But market unpredictability and labor risks make forecasting tougher than ever. https://t.co/hAUAg90yej
— Mortgage Professional America Magazine (@MPAMagazineUS) September 26, 2025
How long will this shutdown last? Hagen believes it won’t be more than a couple of weeks. However, if it goes longer than that, the effects could be more pronounced on the market.
“Anything longer than two weeks feels kind of protracted to me,” he said. “Anything longer than a month, I'd be like, ‘Wow, all bets are off.’ But I'd be a little surprised if it lasted more than a couple of weeks.”
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