HousingWireHousingWire
If a rumored large-scale layoff at the Federal Housing Administration (FHA) occurs, it could result in major damage to key programs that mortgage lenders and investors rely on, such as project-based rental assistance, Section 202 and even financial losses to the national mortgage insurance fund.
This is according to a former HUD official who spoke with HousingWire and was granted anonymity to discuss sensitive plans still taking shape inside the U.S. Department of Housing and Urban Development (HUD) and FHA.
The impact is a loss of roughly 200 people inside FHA between the administration’s deferred resignation program (DRP) and the reported termination of probationary employees, according to the former official’s estimates. This, the source believes, could be only the beginning of more severe personnel cuts.
So far, between the DRP and probationary employee cuts, there have been 200 people cut, the former official estimated. This falls short of initial reports that stated FHA would cut nearly half of its staff of more than 2,000 workers. Part of this, the source speculated, could have come from both media coverage and industry pressure.
HUD told CNN on Wednesday that “suggestions FHA will cut about half its workforce are not accurate,” but did not elaborate.
A HUD spokesperson told HousingWire that “HUD is carrying out President Trump’s broader efforts to restructure and streamline the federal government to serve the American people at the highest standard,” adding that any “streamlining” will be done “while also ensuring the department continues to deliver on its critical functions, mission to serve rural, tribal and urban communities and statutory responsibilities.”
The former HUD official sees the administration disputing wide-ranging cuts as a sign of momentum for the housing industry, though the full amount of potential cuts to the FHA remains unclear. HUD did not specify where or how cuts could be made.
“I believe their need to publicly comment on this reflects the success of industry participants and trade associations already weighing in,” the former official said. “We do not know if and when they will announce additional cuts.”
But there are very apparent impacts on morale at the agency, the former official said, based on discussions with people inside HUD or those communicating with department staff.
“People are truly terrified and traumatized by the uncertainty” of the department’s posture, the ex-official said. But as more people are fired, remaining staff will also see increases in their workloads.
“Given that they are all now facing five days a week in the office, insane commutes, and office and/or desk overcrowding, higher workloads could push many over the edge to voluntarily leave,” the former official said. “There’s definitely a tipping point that could be reached where the agency spirals into full dysfunction.”
Beyond FHA, rumored cuts could have a material impact on HUD’s ability to fulfill its mission, including a key resiliency retrofitting program and Section 202 senior housing, the former official explained.
Doing away with the retrofit or Section 202 programs could lead “private owners and developers [losing] a lot of money and [they] will not be able to improve their properties to reduce operating costs and defend against natural disasters, or to build support or reinvest in senior housing,” the ex-official said.
If other programs like Community Development Block Grants (CDBGs) or the HOME program — which provides grants to state and local governments to create affordable housing for low-income households — are cut, then cities could lose access to block grants for a variety of investments, including infrastructural and transportation upgrades and small business support for home renovations.
Project-based rental assistance and Housing First programs, if cut, could lead to “an enormous reduction of affordable housing, ultimately leading to steep increases in homelessness even among more politically favored groups such as veterans and seniors,” while also leading to “worse educational, health and public safety outcomes,” the former official explained.
Staffing, contract or IT support is harder to predict, the person said, but has a direct impact on the ability of the FHA to run programs. There could be pronounced impacts on the agency’s multifamily support capacity, and while many single-family programs’ front-end work is managed by participating lenders, claims and the National Servicing Center will see more immediate impacts.
Additionally, “contracts that FHA uses to support servicing of partial claims and the Secretary-held HECM portfolio could also be impacted negatively, which could have ripple effects for the industry itself,” the person said, referring to the senior-focused Home Equity Conversion Mortgage (HECM) program and the reverse mortgage industry.
On top of this, a reduction in staff could lead to a loss of receipts for the federal government due to the self-sustaining nature of the MMI Fund, the person said.
“That means that FHA will return less in ‘profit’ to the federal government, reducing federal government revenue that is normally used for other things,” the former official said. “FHA is a negative credit subsidy program, meaning that overall it makes more money for the government than it costs to the tune of billions of dollars. Cutting there seems to make no sense at all.”
