Gutting parts of the Department of Housing and Urban Development, specifically the Federal Housing Administration and Ginnie Mae, will have unintended consequences for borrowers, taxpayers and companies that operate within the financial services sector, a Washington-based think tank argues.
The Urban Institute, in two separate notes, lays out how potential reductions to the workforce of both agencies will hit housing affordability and the economy.
Although unconfirmed, rumors have circulated that the Trump administration plans to reduce HUD’s workforce from 8,300 employees to just over 4,000 as part of an effort to eliminate government inefficiencies. The restructuring is expected to impact the FHA and Ginnie Mae.
Regarding the FHA, Urban’s paper points out that if headcount reductions target staff members that specialize in loss mitigation efforts, this will inevitably trickle down to borrowers by way of pushing up housing-related costs.
A sparsely staffed FHA “could increase the time it takes to assist borrowers and pay lenders incentives or claims,” Urban’s paper, penned by three Urban fellows, including institute fellow Laurie Goodman said.
“Increases in the waiting time to recover losses will reduce servicer liquidity in the short term and increase their likelihood of bankruptcy. In response, originators may increase mortgage rates, putting homeownership further out of reach,” the paper added.
Instead of shrinking the FHA, the Urban authors float the idea of further investment into technology to automate complex processes and “to reduce the labor and time it takes to effectively meet lenders’ and borrowers’ needs.”
Reporting by Bloomberg claimed that 40% of FHA’s workforce are on the chopping block. However, HUD’s Secretary Scott Turner dubbed the news a “false headline alert” in an X post last week.
Deep staff cuts at Ginnie Mae, which had an MBS portfolio of $2.64 trillion in fiscal year 2024, could also create significant disruption, affecting taxpayers and reducing liquidity, a separate Urban Institute paper by two former Ginnie Mae presidents said.
Ted Tozer and Alanna McCargo, the last two Senate-confirmed heads of Ginnie, argue that cuts at the agency put the government guarantors core operations at risk and increase the chances that taxpayers will have to assume the debts of failed issuers.
Any contraction in mortgage availability can also lead to the deterioration of credit quality of the loans in the FHA, Department of Veterans Affairs, and Rural Housing Service mortgage portfolios that are collateralizing the MBS obligations Ginnie Mae is guaranteeing, the authors said.
Ginnie has already seen a slimming of its ranks. In mid-February about 25% of the government guarantor’s workforce was slashed.
Toze and McCargo, in their Urban note, pointed out that only four senior managers remain in place out of nine positions, increasing the risks of mismanagement.
Other industry stakeholders, including Scott Olson, executive director of the Community Home Lenders of America, argued for the protection of both Ginnie and FHA personnel, highlighting the important functions that both entities have in supporting the economy and homeownership.
“There is growing consensus to reform FHA and Ginnie Mae,” he wrote. “All we ask is for this to be done in a balanced manner, which both streamlines operation of these programs and maintains their critical role.”
The reduction to HUD’s personnel comes after the Trump administration announced it was eying $260 million in cuts to the department. Turner disclosed the launch of a Department of Government Efficiency Task Force, composed of HUD employees, to pick apart spending at the department.
Since the launch of DOGE, HUD claims to have recovered $1.9 billion of funds “misplaced by the Biden administration.”
