Consumers may have been more optimistic then. By Nov. 7, the shutdown had entered Day 38, concern was growing.

How servicers have responded

"We had talking points ready on that first day of the month," said Brent Potter, Loancare's chief operating officer. "We also then developed internal reporting; reporting for our MSR owners, our clients; and a FAQ site that was dedicated to government shutdown that our customers could access."

Loancare shaped its response based on what borrowers were saying. Many callers wanted to understand their options for forbearance or delayed payments, but initially decided to "ride it out," Potter said. Most made their October payments.

That changed by the end of the month, when the next round of payments came due and the shutdown persisted. Call volumes doubled, with more borrowers asking for help. Many were living paycheck to paycheck, with little or no reserves, Potter said.

Another company experiencing a surge in calls is DLS Servicing.

"The government shutdown has led to a 290% increase in requests for forbearance plans during the month of October, over the average of the previous two months," said Donna Schmidt, president and CEO.

It's not only government workers feeling the pinch.

"It also has hurt those who work for companies whose income is derived from the government directly or from government employee activities," Schmidt said. "During past shutdowns, the government employees are paid their back wages, but those working for other entities that are affected do not."

Lessons from the pandemic

Loancare is drawing on what it learned from the COVID-19 crisis. During that time, a larger share of calls led to forbearances. This time, the company initially saw fewer borrowers opting for that step — but the rate is climbing.

"Our take rate on forbearances is increasing by the day, because these customers just have an unknown feeling around what to expect," Potter said. "What is a little unique with this government shutdown than the pandemic, though, is that a majority of the customers we're talking to expect to get paid with back pay."

During the pandemic, many borrowers who lost income didn't get that recovery. Loancare has customized scripts for borrowers affected by the shutdown and plans follow-up outreach when it ends "to say now that it's over, let me work with you to bring your account current," Potter said.

The pandemic experience helped the company refine its approach to borrower communication, particularly around forbearance.

"In our process we have here, we are requiring our customers to speak to us and work with us so we can have a firm understanding of their hardship," Potter said. "It's really hard to get everything out there in a self-serve environment and make sure that the customer is fully educated and that we're matching them to the appropriate product."

Growth in forbearance and processing delays

At DLS Servicing, forbearance increases are most pronounced in government-insured portfolios. "We had marginal increases in forbearances in the conventional portfolio. But FHA bore the brunt of the increase," Schmidt said. "We are expecting a significant number of those requesting forbearance will need loss mitigation programs to reinstate their loans."

For VA borrowers, the effect is still emerging. "The VA program does not permit issuing a forbearance plan until a loan is at least 61 days delinquent," Schmidt noted. "So it is too soon to understand the direct impact to Veteran borrowers, but one can imagine that they would be significantly affected."

The shutdown is also slowing loan modifications. "USDA modifications requiring new approvals are facing significant delays until the shutdown ends," said Sapan Bafna, CEO of service provider Outamation. FHA and VA mods are continuing but with some processing lags, he said.

Loancare's portfolio is primarily conforming or government-backed, but its smaller private-label segment follows similar guidance, Potter said. Some credit unions are offering short-term loans to help affected members.

While reporting requirements haven't been interrupted, default reimbursements from federal agencies have. "No staff is available to work with a servicer like Loancare in these instances," Potter said.

The cost to MSR owners

For mortgage servicing rights owners, the shutdown is adding costs. Plaza Home Mortgage is an MSR owner that outsources servicing, is seeing heavier workloads for its contractor due to the flood of borrower questions, said Mike Fontaine, co-president and chief operating officer.

That extra work could become more expensive if loans go delinquent. Plaza pays higher subservicing fees in those cases, Fontaine said, adding that it hasn't distinguished whether the borrower was furloughed by the government. Nor is it yet clear who will be responsible for advancing payments.

"It is rather early because it is the start of November and most borrowers are still in the grace period before they become formally delinquent," he said.

Origination and housing market fallout

The shutdown has disrupted loan production. The suspension of the National Flood Insurance Program means homes in flood zones can't close without turning to private insurers — a pricier alternative, Fontaine said.

Plaza also can't get USDA Rural Housing conditional commitments, halting those loans altogether. Meanwhile, pay verification has become a barrier. "It's been over 30 days since a lot of people have had a pay stub," Fontaine said. "Most of the programs require you to have a pay stub within 30 days."

Fannie Mae and Freddie Mac have issued temporary guidance allowing borrowers with two months' reserves to qualify starting Nov. 3, but "not everybody can always meet the larger reserve requirements," Fontaine said.

That documentation gap threatens purchase timelines.

"If the borrower can't provide the lender with the information in the pay stub, they're going to be blowing their purchase commitments on houses," Fontaine said. "Unless the seller is willing to continue to extend the contract out, you're going to have properties that are going to fall out because the financing contingency can't be met."

The result could be more stalled home sales and damaged credit.

"Shutdowns often hit the people who can least afford the uncertainty," said Jeremy Davis, president of mortgage at Southern Bancorp, a mission-based lender. "Many of our borrowers are rural, low-income, or first-generation buyers whose confidence in the process can be fragile to begin with."

Processing delays are compounding the problem. FHA insurance endorsements are slowing, creating ripple effects for closings. The freeze on USDA lending "means every single rural home loan in process is frozen until further notice," Davis said. "For small-town borrowers, that isn't just a 'delay' — that's a dream put on pause, often at the worst possible time."

Southern Bancorp's team is "working overtime to keep deals alive and spirits high," he said, maintaining daily communication with borrowers, builders and Realtors. "We know how important homeownership is to the underserved folks we serve — it's roofs over families' heads, an opportunity to build generational wealth, and the chance to own a piece of their community."