FHA Layoffs Spark Concerns Over Mortgage Access and Processing Times

Reports of impending layoffs at the Federal Housing Administration (FHA) have raised questions about the future of an agency that insures millions of mortgages nationwide.

Bloomberg Law reported that the FHA plans to eliminate at least 40% of its workforce, compounding cuts at the U.S. Department of Housing and Urban Development (HUD), where divisions face reductions of 50% or more.

HUD has denied the accuracy of the FHA report but provided no details on the agency's plans.

The FHA has insured over 50 million mortgages since the 1930s. It does not provide loans directly, but its mortgage insurance expands credit access to borrowers with lower credit scores or down payments.

In recent years, over 80% of FHA borrowers have been first-time homebuyers, compared to half in the conventional mortgage market. FHA loans are also disproportionately utilized by Black, Latino, low-income, and younger borrowers.

Industry experts express concerns that staffing cuts could delay mortgage processing times, potentially adding days to a process that is currently streamlined. Tammy Saul, CEO of Federal Hill Mortgage, believes that this could reinforce the stigma associated with FHA financing.

"Sellers often perceive FHA buyers negatively due to potential credit issues," Saul said. "Adding delays will further exacerbate this perception."

Despite seller preferences for conventional mortgages, FHA loans historically accounted for over 10% of the market. Notably, FHA's market share tends to increase during periods of limited credit availability.

Colin Robertson, a former mortgage executive, emphasizes the significance of the situation. However, he notes that FHA loan volumes have declined alongside the wider industry in the face of high interest rates and poor affordability.

Mark Fisher, regional vice president at UNMB Home Loans, anticipates longer delays in FHA guideline inquiries but maintains that most lenders have a strong understanding of the program's regulations.

The FHA insured approximately $232 billion of new mortgages in the last fiscal year, down from $310 billion in 2020. Its operations are primarily self-funded through mortgage insurance premiums.

Antonio Gaines, president of the union representing HUD workers, awaits clarity on the extent of FHA cuts. However, he anticipates that they will be less severe than layoffs in HUD divisions involved in housing discrimination investigations, market research, and housing assistance.