From day one, the Trump administration has called on federal departments to “lower the cost of housing and expand housing supply” and to reduce inefficiencies and cut government waste. But a recent call to make deep cuts to the Federal Housing Administration (FHA) workforce achieves neither of these goals.
Instead, evidence shows that these cuts could hobble the housing finance system—reducing housing affordability and supply—and decrease government revenue, as income from FHA premiums offsets the costs of other programs.
To lower housing costs and expand housing supply, the administration should instead use the FHA as one of its most important levers for change. Gutting the FHA’s capacity to finance and insure mortgages is likely to hurt consumers and the economy, as homeownership and homebuying are key drivers of nationwide consumption and wealth.
Cuts to the FHA’s staff could reduce efficiency
According to Bloomberg, the FHA, which insures mortgages made by approved lenders, is set to lay off 40 percent of its staff. Already, the US Department of Veterans Affairs (VA) has fired about 2,400 workers, and many industry experts expect that Ginnie Mae will face similar cuts soon. Previous reporting has claimed that as much as 50 percent of the US Department of Housing and Urban Development (HUD) workforce is being laid off. HUD secretary Scott Turner has confirmed that the department will launch a task force to review budget and spending.
Although it’s unknown which FHA staff members will be most affected by layoffs, any staff cuts of the suggested size could have huge effects on the housing industry. Currently, the FHA expands access to homeownership by allowing the lenders it insures to issue mortgage-backed securities on the secondary market, backed by the full faith and credit of the US government. These securities help keep liquidity flowing through the affordable mortgage market through the FHA’s sister agency, Ginnie Mae. Both entities largely pay for themselves through their fees.
Based on the latest report from HUD, the fund that backs the FHA’s mortgage insurance currently holds more than five times what is congressionally mandated. By many measures, the FHA is a success story: it consistently makes a profit for the government and has a strong reserve. While there may be inefficiencies within FHA and it could likely benefit from technological advancements, staffing reductions prior to such investments are likely to cost taxpayers far more than they save and could undermine the efficiency of the housing finance system.
So, what would FHA staffing cuts look like? The origination process for government loans is largely, but not completely, automated, especially for large lenders. Throughout the origination process, lenders regularly rely on the FHA’s National Servicing Center, meaning staff cuts could lead to a meaningful reduction in FHA lending.
Staffing cuts would likely disrupt the housing industry
After loans are made, they must be serviced. The FHA’s servicing arm is one of its most labor-intensive sectors, so layoffs could put the payment streams that servicers, investors, and the FHA rely upon at risk. Cuts to staff members who work on preventing foreclosures and liquidating foreclosed assets would cause greater revenue losses and could create serious liquidity risks for private servicers and lenders. Without first making investments in technology or other opportunities to streamline these processes, significant staff cuts to FHA’s servicing arm could cause instability in the housing finance market.
According to Inside Mortgage Finance data, the FHA backed more than 15 percent of all mortgage loans made in the fourth quarter of 2024. In recent years, this share has fluctuated (PDF) from about 18 percent (when the Great Recession chilled other capital sources) to about 9 percent. Government-backed loans are more accessible than conventional mortgages, and more than 80 percent of FHA mortgages are used by first-time homebuyers. The FHA allows for lower down payments—borrowers pay a median down payment of 3.5 percent of their home value, in contrast to the 20 percent the median conventional borrower pays.
Given their wider credit box and more accessible down payment requirement, FHA mortgages have higher default risk than conventional mortgages. Part of the FHA’s portfolio, then, is to work with servicers to help borrowers keep their home during hardships, such as a job loss. In cases where foreclosure cannot be avoided or where the lender needs to make a claim, FHA staff members inspect and liquidate those properties to avoid losses.
Staffing cuts, especially cuts to staff members with specialized knowledge of these complex processes, could increase the time it takes to assist borrowers and pay lenders incentives or claims. 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.
Staffing cuts could also hamper the FHA’s ability to adapt to changing market conditions and innovate more effective loss mitigation strategies. In the short term, the FHA might not be able to implement its new loss mitigation framework, which research estimates could cut the transition rate from serious delinquency to foreclosure by 46 percent. Currently, lenders have until February 2026 to implement the new framework, but cuts to the FHA could push that timeline further out or halt implementation entirely. It is critical the new loss mitigation framework is fully implemented, as delinquencies have increased recently.
Beyond supporting homeownership for families, the FHA insures more than 12,000 multifamily loans and loans for the construction, acquisition, and rehabilitation of senior living facilities and hospital facilities. Layoffs could reduce or halt these operations.
Already, the FHA’s process for multifamily loan approvals is labor and time intensive—and certainly warrants a conversation about increasing efficiency. But without significant investments in technology and preservation of industry knowledge prior to layoffs, staff reductions could, at a minimum, cut the volume of these loans and, at worst, halt the FHA’s multifamily business entirely. Given the severe housing supply shortage the country faces, especially at the affordable end of the market, reducing any piece of construction financing—especially a well-performing piece that offsets its expenditures—seems counterproductive.
Finally, the FHA insures home equity conversion mortgages (HECMs), also known as reverse mortgages, for seniors. Through the HECM program, seniors can extract home equity for maintenance, repairs, or general living expenses, all while remaining in their own homes. The HECM program is disproportionately labor intensive, and layoffs could decimate a lifeline for senior homeowners during a time of rapid aging in the US.
Better options exist to reach the administration’s stated goals
There are opportunities to make the FHA more efficient, like investing in better systems to automate complex processes and to reduce the labor and time it takes to effectively meet lenders’ and borrowers’ needs. But cutting staff is not the path to the administration’s goals.
Reducing the FHA’s capacity doesn’t save taxpayers money, and it might even cost taxpayers money, as there will be fewer resources for mortgage loss mitigation. A lower capacity would reduce opportunities for many renters to become homeowners, reduce opportunities for distressed borrowers to maintain homeownership, and cut affordable multifamily and hospital facility financing. And it could create serious liquidity risks for lenders. In short, cutting staff at the FHA is likely to cause problems, not solve the ones that households, industry, and the government face.
Let’s build a future where everyone, everywhere has the opportunity and power to thrive
Urban is more determined than ever to partner with changemakers to unlock opportunities that give people across the country a fair shot at reaching their fullest potential. Invest in Urban to power this type of work.
