Department of Housing and Urban Development
Source: Department of Housing and Urban Development
Tens of thousands of federal workers have lost their jobs in recent weeks as the Trump administration attempts to slash government spending.
Employees at the Federal Housing Administration could be one of the next targets, according to Antonio Gaines, president of the American Federation of Government Employees National Council 222, a labor union that represents the largest number of employees at the Department of Housing and Urban Development.
It’s unclear how many and what type of workers are at risk of losing their jobs within the FHA, an agency under HUD.
“It will not be near the 40% to 50% range that other program areas are experiencing, but there will be some cuts,” Gaines told CNBC.
HUD Secretary Scott Turner launched a Department of Government Agency Task Force in February to review HUD’s budget and look for ways to cut spending.
Bloomberg reported a potential 40% slash to the agency’s headcount. HUD did not return CNBC’s requests for comment, but HUD officials told Bloomberg that the 40% figure is “not accurate.”
The White House did not respond to requests for comment.
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The FHA is one of the main government agencies that offers low down payment mortgages for qualifying homebuyers in the U.S. FHA loans can require as little as 3.5% down for qualifying borrowers, which include first-time buyers, low- and moderate-income buyers and buyers from minority groups.
About 15% of mortgaged home sales used an FHA loan in December, up from mid-2022’s decade-low of roughly 10%, according to Redfin. The rise could be a sign of the competition in the housing market winding down, Chen Zhao, a Redfin economist, recently told CNBC.
Here’s what potential staff cuts to the FHA could mean for homebuyers in the U.S. down the line, according to experts.
How fewer staffers at FHA can affect homebuyers
While it remains to be seen if FHA staff cuts materialize, and to what extent, any layoffs should not affect the ability for borrowers to get an FHA loan, said Melissa Cohn, regional vice president at William Raveis Mortgage. But they may slow the process.
“Fewer loans will get approved in the same time period because there are just fewer people working on them,” she said.
Ingrid Gould Ellen, a professor of urban policy and planning, and director of housing and urban policy at New York University, agreed, saying “I can imagine the cuts potentially leading to delays at all stages.”
That could mean it takes longer to receive approvals, or resolve any issues between the loan originator and FHA after the loan closes, she said.
“These delays would ultimately lead to higher costs of mortgages,” Gould Ellen said, as it will take more time to close a loan and lock in an interest rate.
FHA staff typically run borrowers’ applications through a model program that determines whether or not they get approved for a loan, said Richard Green, director and chair of Lusk Center for Real Estate at University of Southern California.
In some cases, the system will flag applicants as “exceptions,” or individuals who need to go through manual underwriting. This can be a “labor intensive process,” he said.
“For those who got loans through manual underwriting, I would imagine it’s going to take longer,” if there are staff cuts, Green said.
With fewer FHA staff workers available, third-party loan officers who are tasked with processing FHA loans could potentially charge higher fees to compensate for the added labor, he said.
“People’s time has value. And if you’re telling loan officers that they’re going to have to take more time to do an FHA loan, it will show up in cost,” Green said.
Higher fees could eat into how much a buyer is able to put down. This will ultimately further burden individuals who are seeking out low-down payment mortgages because they don’t have enough savings to fully cover upfront costs.
‘Business as usual’ for now
“So right now, it’s business as usual,” she said.
But keep in mind that any staffing cuts could affect how long it takes to get an FHA loan, Cohn said: “Buyers who are looking to buy today are going to have to take more time to get the deal done.”
Slower processing times could make your offer less competitive, especially if sales in your market typically close in shorter periods, she said.
For instance, if you’re shopping in a place where it usually takes 30 days for a transaction to complete, “a seller might not be willing to wait” any longer to get an FHA deal to close, Cohn said.
Therefore, if you’re a first-time homebuyer on the market, you may benefit from casting a wide net when searching for mortgage financing. Look at down payment assistance programs at the state or local level, which can help you put down more and broaden your lending options, experts say.