FHFA watchdog warns budget cut will curb oversight at U.S. housing regulator

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FHFA budget cut warning

Highlights

FHFA's Office of Inspector General faces a budget reduction to $20 million, 64% below the White House request, risking 70% to 80% staff cuts and halted investigations.
Director Bill Pulte’s leadership faces political backlash as he is accused by Democratic lawmakers of shutting down independent oversight and weaponizing agency investigations against perceived political enemies.
The budget dispute follows Pulte's 2023 accusations of mortgage fraud against officials like Federal Reserve Governor Lisa Cook, drawing lawmaker and prosecutor scrutiny of Pulte’s own actions.

Budget reduction threatens investigations

As reported by Reuters, Acting Principal Deputy Inspector General James Hodge tells Senate and House lawmakers that the funding cut would reduce the Office of Inspector General's annual budget to $20 million, or 64% below the budget the White House submitted to Congress.

In a letter seen by Reuters, Hodge says the office would need to cut 70% to 80% of its staff and discontinue investigations. He says funding at that level would eliminate its capacity to effectively conduct criminal investigations into mortgage, bank and other fraud schemes involving entities regulated by the FHFA.

The FHFA says on Wednesday that it cut funding for the Office of Inspector General in an effort to bring it more in line with peer watchdog offices. Offices of inspector general are nonpartisan units within agencies that are meant to uncover financial waste and misconduct, although the FHFA watchdog has also historically examined fraud and abuse across the broader mortgage market.

Political pressure builds around FHFA leadership

The budget cut comes during a turbulent period at the historically low-profile agency. FHFA Director Bill Pulte has used the agency to target people seen as foes of President Donald Trump, and last year he ousted the acting inspector general and drove out hundreds of employees at the regulator.

Democratic leaders including U.S. Senators Elizabeth Warren of Massachusetts and Dick Durbin of Illinois say in a joint statement that Pulte is shutting down the independent watchdog responsible for investigating his conduct, including what they describe as efforts to weaponize private mortgage data in investigations against the president's perceived political enemies. In a statement, Pulte says Warren wants to undermine what he calls good financial stewardship by opposing efforts to align the watchdog office with its peers.

Last year, Pulte accused Federal Reserve Governor Lisa Cook, New York Attorney General Letitia James and California U.S. Senator Adam Schiff of potential mortgage fraud. That move drew scrutiny from lawmakers and federal prosecutors over Pulte's own conduct, adding to the stakes of the latest funding dispute for the U.S. housing finance sector.

Hazel Residential PLC’s mortgage-backed securitisation rating upgrades highlighted strengthening credit support across several note classes, driven by amortisation, repurchases and reserve-fund dynamics. At the same time, the piece flagged persistent risk markers in the underlying loan pool, including elevated arrears and potential prepayment volatility as large blocks of fixed-rate loans revert to floating rates in 2027.

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