FHFA Internal Watchdog Warns Budget Cut Will Hinder Its Work

The Federal Housing Finance Agency last week slashed the budget of its internal watchdog, which, in turn, warned lawmakers that it will have to cut most staff and will ‌not be able to police misconduct.

The FHFA oversees mortgage giants Fannie Mae and Freddie Mac, and on Wednesday it cut the Office of Inspector General’s funding, saying it was aiming to bring it more in line with that of its peers.

Reuters reported that the cut comes after a tumultuous time at the historically low-profile agency that plays an integral ​role in the overall housing market. Critics have said they believe that FHFA Director Bill Pulte has used the agency to target President Donald Trump’s perceived foes, Reuters reported.

Last year, Pulte ousted the Acting IG and drove out hundreds of employees at the regulator, Reuters reported.

OIGs are nonpartisan offices within government agencies that seek to root out financial waste and misconduct.

Large Portion of Agency Budget

In a statement, FHFA said the OIG headcount represents 18% ​of its total workforce, or about 110 people based on the latest employment figures available on the Office of Management and Budget website.

In its statement, the FHFA said that in addition to ​representing an outsized portion of overall agency staff, the FHFA OIG has requested about 16% of the budget, compared to about 2% at other regulators.

Critics of the move said that comparison does not take into account that the inspector general’s office also serves as a watchdog for Fannie Mae, Freddie Mac and ​the federal home loan banks.

Its law enforcement unit investigates fraud throughout mortgage markets, Reuters reported.

The IG’s Acting Principal Deputy James Hodge wrote to ​Senate and House lawmakers last week, saying the cuts would reduce the office’s annual budget to $20 million — 64% less than the budget the White House submitted to Congress.

Hodge said the office would have to cut 70%-80% of staff and discontinue investigations.

Cuts Coming In Months

“Simply stated, funding at the $20 million level will eliminate our capacity to effectively conduct criminal investigations of mortgage, bank, and other fraud schemes involving the entities FHFA regulates,” Hodge wrote in the letter seen by Reuters.

In a meeting on Thursday, leaders warned OIG staff that staff cuts would occur over the next several months because of the cuts, according to two people familiar with the ​matter, who spoke to Reuters on condition of ​anonymity.

The office is working with Congress on a legislative fix, but it was unclear how successful that effort would be, one source and another person said.

Democratic lawmakers attacked the budget ​cuts.

“Bill Pulte is shutting down the independent watchdog that is responsible for investigating his misconduct – like efforts to ​weaponize private mortgage data in sham investigations against the president’s perceived political enemies,” a group of lawmakers including Senators Elizabeth Warren of Massachusetts and Dick Durbin of Illinois said in a statement.

The FHFA director defended the action.

In a statement, Pulte said Warren “wants to kill good financial stewardship to align our IG’s office with its peer IG Offices.”