A report of coming layoffs at the Federal Housing Administration is casting fresh doubts about the future of an office responsible for insuring millions of mortgages across the country.
Bloomberg Law reported on Tuesday that the FHA plans to lay off at least 40% of its workforce, adding to pain at the U.S. Department of Housing and Urban Development, where many divisions are bracing for cuts of 50% or more.
A representative for HUD told Bloomberg the FHA report wasn’t accurate but didn’t elaborate on the department’s plans. A representative didn’t respond to a request for comment from Yahoo Finance.
Since the 1930s, the FHA has insured more than 50 million mortgages. It doesn’t provide loans itself — that’s done by certain approved lenders. But providing mortgage insurance expands credit access by encouraging lenders to make loans to borrowers who might not otherwise qualify for conventional mortgages because they have lower credit scores or less money for a down payment.
Last year, more than 80% of FHA borrowers were first-time homebuyers, compared with about half in the conventional mortgage market. A larger share of FHA loans also go to Black and Latino borrowers, low-income borrowers, and borrowers under 35 compared to traditional mortgages.
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A major staffing cut could delay processing times on the loans, perhaps adding a day or two to administrative work that’s now nearly instant, said Tammy Saul, cofounder and chief executive officer of Federal Hill Mortgage in Baltimore, Maryland.
But in her mind, the bigger risk is if delays worsen the stigma of using FHA financing in the first place. Particularly in competitive markets, FHA buyers can be at a disadvantage because their loans suggest a buyer with a lower credit score or past problems like a foreclosure, she said.
“When the seller sees an offer with an FHA letter, they’re scared of it already,” Saul said. “Now on top of that, they’re going to think, ‘This buyer is not going to close on time.’”
Although sellers may prefer conventional mortgages, FHA loans have historically made up more than 10% of the market. Last year, 14.5% of purchase mortgages were FHA insured, along with nearly 11% of refinancings. The FHA’s market share typically grows as credit availability weakens.
“To say this is a very big deal would be a huge understatement,” Colin Robertson, a former mortgage account executive who now runs a blog about the industry, wrote on Tuesday.
If there’s any upside, it’s that FHA loan volumes, like the rest of the industry, have fallen dramatically in recent years amid the current high interest rate environment and dismal affordability, he added.
