Potential Job Cuts at HUD and FHA: What It Means for Homebuyers

Introduction

The Department of Housing and Urban Development (HUD) and its Federal Housing Administration (FHA) are facing potential job cuts as part of the Trump administration’s efforts to reduce government spending. These cuts could impact the FHA’s operations, which play a crucial role in providing low-down-payment mortgages to homebuyers across the U.S. While the exact number of jobs at risk remains unclear, experts warn that any staffing reductions could slow down the homebuying process and increase costs for borrowers.

Potential Job Cuts at HUD and FHA

The FHA, a key agency under HUD, is facing potential staff reductions as part of broader efforts to slash government spending. Antonio Gaines, president of the American Federation of Government Employees National Council 222, which represents HUD employees, has cautioned that while the cuts may not reach the 40-50% range seen in other government programs, some layoffs are likely. The FHA is one of the primary government agencies offering low-down-payment mortgages, with loans requiring as little as 3.5% down for qualifying buyers, including first-time homebuyers, low- and moderate-income individuals, and minority groups.

The FHA’s role in the housing market has become increasingly important in recent months. About 15% of mortgaged home sales in December utilized FHA loans, up from a decade-low of roughly 10% in mid-2022. This rise suggests that more homebuyers are turning to FHA loans, possibly due to increased competition in the housing market.

How FHA Staff Cuts Could Affect Homebuyers

While it’s unclear whether the proposed staff cuts will materialize, experts warn that any reductions in FHA personnel could lead to delays in the loan approval process. Melissa Cohn, a regional vice president at William Raveis Mortgage, notes that fewer staffers could mean fewer loans approved in the same time period. This could result in longer wait times for borrowers, leading to higher costs as interest rates fluctuate and loan closings are delayed.

Ingrid Gould Ellen, a professor of urban policy and planning at New York University, agrees that staff cuts could cause delays at all stages of the loan process. This includes slower responses to issues that arise after a loan is closed, potentially increasing the overall cost of mortgages. Additionally, delays could make homebuyers’ offers less competitive in fast-moving markets, as sellers may be unwilling to wait for FHA loans to close.

The Impact on Manual Underwriting and Loan Costs

One of the most labor-intensive aspects of the FHA loan process is manual underwriting, which is required for certain "exception" cases. Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, explains that manual underwriting involves additional scrutiny of a borrower’s financial situation and can take significantly more time. With fewer FHA staff available, this process could become even slower, leading to longer wait times for borrowers whose applications require manual underwriting.

Furthermore, third-party loan officers who process FHA loans could charge higher fees to compensate for the additional labor involved in handling these loans. Green warns that these higher fees could reduce the amount buyers can afford to put down, further burdening those who are already stretching their budgets to secure a low-down-payment mortgage.

Practical Advice for Homebuyers

For now, it’s "business as usual" for the FHA, but homebuyers should be prepared for potential delays in the loan process if staff cuts occur. Cohn advises buyers to consider casting a wide net when searching for mortgage financing, as slower processing times could make their offers less competitive in markets where transactions typically close quickly. For example, in areas where closings usually take 30 days, sellers may be unwilling to wait longer for an FHA loan to close.

Additionally, experts recommend exploring alternative financing options, such as down payment assistance programs offered at the state or local level. These programs can help buyers secure larger down payments, opening up more lending options and reducing reliance on FHA loans. For first-time homebuyers, in particular, these programs could be a crucial resource in navigating an increasingly competitive housing market.

The Future of FHA and Homebuyer Implications

While the full extent of the potential job cuts at HUD and the FHA remains uncertain, the impact on homebuyers could be significant. Slower processing times, higher fees, and increased competition for sellers’ attention could make it more challenging for borrowers to secure FHA loans. As the housing market continues to evolve, homebuyers would do well to stay informed about potential changes and explore alternative financing options to ensure they are prepared for any delays or increased costs associated with FHA loans.