"The problem is going to grow in magnitude every day this shutdown goes on, because lenders' liability is at risk," David Stevens, chief executive of the Mortgage Bankers Association and former head of the FHA , said after a conference call Friday with heads of a dozen banks.
Nor will the problem disappear as soon as the government reopens.
"Even if this were to get resolved in a week, you've got an enormous backlog," said Eric Gates, President of Apex Home Loans in Rockville, Md. "It's going to double or triple the effects in terms of delays."
The approval of mortgage applications requires several interactions with the federal government that many home buyers may not know about. Lenders have become much more meticulous about following federal rules after the housing crisis, which began in 2007, and are now more thorough in verifying the information on loan applications. These concerns were far less common when the government last shut down in 1995.
"The need for document checks and quality control just didn't exist," Stevens said. "Today, we're in a world of huge risk and regulatory requirements."
Among the obstacles, it is furloughs at the IRS that could have the widest impact. Lenders routinely file a form with the IRS asking for a copy of a borrower's tax returns. The purpose is to make sure that the buyer provided accurate income information.
But the IRS sent most of its employees home Tuesday when Congress failed to agree on a budget, including those that process so-called tax return transcripts.
Lenders also rely on the Social Security agency to verify borrowers' Social Security numbers as a way of confirming their identity. These checks are done automatically, but the website that provides the information is down.