FHFA Staff Cuts Threaten Mortgage Research, Fair Lending Work

The Federal Housing Finance Agency is looking to fire employees focused on fair lending and consumer protection as part of a wave of terminations across the agency, according to multiple sources familiar with the matter.

The regulator on March 18 started putting scores of employees on administrative leave, such as workers in the Division of Public Interest Examination—including a consumer protection unit—and a team of research economists. The administrative leave is a precursor to their termination, the sources familiar with the matter—who requested anonymity due to fear of retaliation—told Bloomberg Law.

The shakeup, part of the Trump administration’s bid to slash what he says is federal government bloat, imperils important research on the US mortgage market and fair lending, industry professionals say.

The Division of Public Interest Examination, which is now shuttered entirely, focused on ensuring mortgage finance giants Fannie Mae and Freddie Mac comply with fair lending and consumer protection laws. Employees in that division not put on administrative leave were transferred to other divisions within the FHFA, the sources said.

The economists on the chopping block did research on mortgage markets, including reports on affordable housing and fair lending, for public consumption but also for internal use at the FHFA. Some of that work, such as on interest rate disparities, was mandated by Congress.

Many financial institutions separately provide key data under the Home Mortgage Disclosure Act, overseen by the Consumer Financial Protection Bureau, but the FHFA economists were able to obtain additional information through confidential supervision.

The FHFA is the conservator and regulator of Fannie Mae and Freddie Mac, which failed during the 2008 financial crisis, and sets affordable housing goals for the two companies. It also monitors the Federal Home Loan Bank system to support affordable mortgages.

Newly confirmed FHFA Director Bill Pulte initiated a slew of firings at both the FHFA and the mortgage giants it oversees, including moves targeting the agency’s head of human resources and its chief operating officer, according to Bloomberg News.

“We are streamlining our Agency and its naming conventions, but FHFA will continue to follow all mandated laws, including statutory requirements for statistics and reports,” the FHFA said in a statement.

The FHFA hasn’t moved to terminate its examiners inspecting Fannie Mae and Freddie Mac’s financial health, instead moving them to a different unit within the agency, multiple sources said. And the agency is still producing key data like its House Price Index, the sources said.

The CFPB—also targeted for major cuts under the Trump administration—so far has maintained its HMDA databases, which are a key source of data for companies, researchers, and the government, said Val Buresch, the founder and CEO of mortgage data provider Polygon Research.

‘Envy of the World’

The FHFA, along with the CFPB, is a key source of data for the mortgage industry.

“We’re the envy of the world in that,” said Ethan Handelman, an independent mortgage consultant and former FHFA and Federal Housing Administration official.

Much of that data is acquired through the supervisory examination process, something no private data collector can replace, he said.

Eliminating even some of that data will make it harder to understand the mortgage market, Handelman said.

Cutting back on fair lending exams and reporting will also make it harder to assess “whether participants in the market are following rules against discrimination,” he said.

Over time, discrimination makes the mortgage market less efficient and could lead to higher rates.

It’s also a bad idea to eliminate research on affordable housing at a time when owning a home is unattainable for many Americans, said Brendan McKay, the owner of McKay Mortgage Co. and the chief advocacy officer at the Broker Action Coalition, a mortgage broker industry group.

Privatization Push

The moves inside the FHFA come as the Trump administration pushes to privatize Fannie Mae and Freddie Mac, something hedge funds and other investors have been pushing for. The companies purchase mortgages from banks and package them into securities sold to bond investors, freeing up the banks to issue more mortgages.

Pulte last week appointed himself chairman of the boards at Fannie Mae and Freddie Mac and appointed the FHFA’s general counsel to both boards, despite rules against doing so, Handelman said. He also forced out Freddie Mac’s CEO and other top officials.

Hollowing out the regulators could make compliance costs at the mortgage finance companies much smaller, said David Friend, a mortgage consultant and former senior CFPB lawyer.

“If you remove that, it makes it more attractive to Wall Street,” he said.