The FHA and VA are still processing mortgages, but an inability to get critical information from other federal agencies could throw a wrench into mortgage applications across the board during the government shutdown.

Both the VA and HUD (Department of Housing and Urban Development), the parent agency of the FHA, have indicated that they'll be able to continue to process mortgage applications despite the government shutdown that has forced the closure of many federal offices and the suspension of their operations.

However, without being able to confirm Social Security numbers or obtain tax transcripts from the IRS to verify income data, it appears that all mortgage applications could be put on hold.

A blow to housing recovery?

"This is going to be very disruptive to the mortgage industry and pretty much result in a freeze of the pipeline," said Craig Strent, CEO of Bethesda, Md.-based Apex Home Loans told CNBC. "New loans can be taken, but without IRS and Social Security number verifications, [they] will not be able to proceed to closing."

With the housing market still relatively weak, many observers have expressed concern that an extended shutdown could stall out its recovery.

Other parts of processing the mortgage can continue, but few lenders will finalize a home loan without those two crucial pieces of information, unless they're in the business of providing privately funded loans to select clients. But guaranteed loans, such as those backed by FHA, VA or Fannie Mae and Freddie Mac - private guarantors under government conservatorship - cannot be approved without that information.

Loans still being processed

Both the VA and FHA have indicated they will continue to process mortgage applications during the shutdown, but unless income and Social Security information has already been obtained, those loans won't be able to proceed to closing without it.

VA loans should not be affected in the short term, according to Timothy Nash, chief compliance officer for VA Home Loan Centers. However, he said that the IRS issue does represent a potential source of delays.

The FHA will also continue to process loans during the shutdown, although initial indications from HUD (the Department of Housing and Urban Development) were that it would suspend operations during the shutdown. A statement from HUD over the weekend reversed that position, but did not address the IRS and Social Security issues.

Because they are private companies, even though under Federal Housing Finance Agency (FHFA) supervision, Fannie Mae and Freddie Mac won't be directly affected by the shutdown, but the inability to get income and Social Security information will affect their ability to approve mortgages as well.

USDA Rural Development Loans will be completely on hold during the shutdown, as that agency has indicated it will not be processing any loans until funding for operations is restored.

Published on October 2, 2013