Layoffs at the Federal Housing Administration Raise Concerns About Mortgage Market
Rumors of impending layoffs at the Federal Housing Administration (FHA) have raised concerns about the future of the agency that insures millions of mortgages across the United States.
Bloomberg Law reported on Tuesday that the FHA plans to dismiss at least 40% of its workforce, exacerbating staffing cuts at the U.S. Department of Housing and Urban Development (HUD), where several divisions anticipate reductions of 50% or more.
A HUD spokesperson denied the accuracy of the FHA report but declined to provide details on the department's plans.
Since its inception in the 1930s, the FHA has provided mortgage insurance for over 50 million loans. While it does not originate loans itself, its insurance program enables lenders to offer financing to borrowers who may not qualify for conventional mortgages due to lower credit scores or limited down payments.
In 2022, over 80% of FHA borrowers were first-time homebuyers, significantly higher than the conventional mortgage market. FHA loans are also disproportionately utilized by Black and Latino borrowers, low-income households, and individuals under 35.
Industry experts express concern that large-scale job cuts could delay loan processing times, which are currently nearly instantaneous. However, the greater worry is that extended delays may further stigmatize FHA financing.
"Sellers are already apprehensive when they see an offer with an FHA letter," said Tammy Saul, CEO of Federal Hill Mortgage. "Adding potential delays to the process will only reinforce their perception that FHA buyers may not close on time."
Despite seller preferences for conventional mortgages, FHA loans have historically accounted for more than 10% of the mortgage market. Last year, 14.5% of purchase mortgages and 11% of refinancings were FHA-insured. The FHA's market share typically increases during periods of reduced credit availability.
"To say this is a significant development would be a vast understatement," wrote Colin Robertson, a former mortgage executive and industry blogger. He notes that declining loan volumes throughout the industry in recent years may mitigate the impact of the job cuts.
Mark Fisher, regional vice president at UNMB Home Loans, anticipates potential delays in FHA clarification calls but believes most lenders are well-versed in the program's guidelines.
"From an operational perspective, I don't foresee a significant impact on our day-to-day operations," said Fisher.
In the last fiscal year, the FHA insured $232 billion in new mortgages, down from $310 billion in 2020. The agency is largely self-funded through mortgage insurance premiums paid by borrowers.
The union representing HUD workers has not yet received details on the extent of the FHA cuts. However, they are expected to be less severe than layoffs in other HUD divisions responsible for investigating housing discrimination, conducting market research, and providing housing assistance.