FHFA OIG says budget cuts will eliminate criminal probes

A federal mortgage watchdog suggests its office will soon go soft on crime. 

The Federal Housing Finance Agency is slashing funding for its Office of the Inspector General by over 63%, its acting leader said. That cut will severely handcuff its enforcement activities and seemingly undercut Director Bill Pulte's campaign to root out mortgage fraud. 

"Funding at the $20 million level will eliminate our capacity to effectively conduct criminal

investigation of mortgage, bank, and other fraud schemes involving the entities FHFA regulates," wrote James Hodge, acting principal deputy inspector general, in a letter to lawmakers this week. 

Hodges is apparently the top-ranking official at the FHFA OIG after acting IG Joe Allen was ousted last November. The OIG, which employs 40 special agents and 3 attorneys, has begun layoffs, Hodges said. The office has secured 1,270 convictions and nearly $75 billion in monetary results since 2011. 

The FHFA explained it is rightsizing a budget that is nine times higher than the average OIG budget across the government. In statements this week, the agency emphasized that it's not cutting oversight. 

"Independence does not mean exemption from fiscal accountability," the agency said in a statement. "FHFA supports a strong, independent OIG, while still requiring responsible financial stewardship. This does not restrict audits, investigations, or law-enforcement activity."

Congressional Democrats quickly slammed the budget cuts. 

"Pulte's corrupt crusade to protect himself and President Trump from accountability will likely result in the firing of approximately 40 law enforcement personnel who protect families from mortgage fraud," said Dems from House and Senate committees in a joint statement Thursday. "Bill Pulte should resign, and if he does not, Congress must hold him accountable."

How the cuts will affect OIG

President Trump's fiscal year 2027 budget in April earmarked $55 million in funding for the OIG. Hodges claims he was told on Aug. 31 that funding would be reduced to $20 million. 

That slash will force the OIG to reduce its staff by 70% to 80%. Hodges said he lowered the budget request to $49.9 million, a level of funding the office previously received from 2016 to 2022, but the FHFA's general counsel refused to budge. The GC also allegedly scrutinized the OIG's budget methodology. 

Hodges described the OIG's funding from assessments collected through Fannie Mae, Freddie Mac, the Federal Home Loan Banks and U.S. Financial Technology. The office is the primary law enforcement body for mortgage fraud, and has not endured a budget cut since its inception in 2011.

The OIG received $10 million in allocations this week to cover the first six months of the fiscal year, Hodges said. He expects the OIG to exhaust that amount in just three months, and its mulling moves including closing field offices and banning all travel, including for criminal probes.

The cuts will leave the OIG with personnel responsible for statutorily required audits and investigations, and minimum infrastructure for information security requirements.

The FHFA's response

The FHFA said the OIG's funding request would represent 16% of the agency's entire budget and 18% of its workforce, versus the average 2% to 4% level for other OIGs. The agency emphasized that the final budget is still three times greater than the average OIG funding level. 

"FHFA cannot justify such a discrepancy to the American people," the agency said. 

The budget cuts are the latest twist in the FHFA's efforts to root out fraud. Pulte's regulator has suspended lender counterparties at a faster rate than his predecessors, but some of his high-profile mortgage fraud accusations have so far fizzled out.