FHFA Cuts Inspector General Budget to $20 Million as Watchdog Warns of Deep Staff Reductions

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The Federal Housing Finance Agency has cut the annual budget of its independent inspector general to $20 million, a 64% reduction from the level the White House submitted to Congress, prompting the watchdog to warn lawmakers that it may have to eliminate 70% to 80% of its staff and discontinue investigations.

The FHFA announced the budget decision Sept. 30, describing the new allocation as a “peer-matched” budget intended to bring the Office of Inspector General’s spending and staffing closer to comparable federal watchdog offices.

Acting Principal Deputy Inspector General James Hodge gave Congress a sharply different assessment of the consequences. In a letter sent Wednesday and reviewed by Reuters, Hodge said funding at the $20 million level would leave the office unable to effectively conduct criminal investigations of mortgage, bank and other fraud involving entities regulated by FHFA.

The dispute matters beyond the agency’s internal budget. FHFA regulates Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, institutions that occupy a central role in U.S. mortgage finance. The inspector general conducts audits, evaluations and investigations involving FHFA and those regulated entities, and its law-enforcement work includes mortgage and financial fraud.

FHFA says watchdog spending is out of line with peers

FHFA said the inspector general’s office represents about 18% of the agency’s workforce and had requested roughly 16% of FHFA’s budget. The agency said inspector general offices at comparable financial regulators account for about 2% of their agencies’ budgets.

“To be good financial stewards, FHFA Inspector General’s budget will match the budgets of peer agencies,” the regulator said in announcing the change.

The comparison is disputed. The inspector general’s responsibilities extend beyond oversight of FHFA itself to work involving Fannie Mae, Freddie Mac and the 11 Federal Home Loan Banks. That broader remit includes criminal investigations tied to mortgage and bank fraud.

According to FHFA-OIG’s published results, the office reported 32 indictments or charges, 23 convictions or guilty pleas and 25 sentencings between Oct. 1, 2025, and March 31, 2026. It reported approximately $87.7 million in total monetary results from investigations during the same period, including about $76.6 million in criminal restitution.

Watchdog warns investigations could be curtailed

Hodge told lawmakers the $20 million allocation is 64% below the budget the White House submitted to Congress. He said the reduction would require a 70% to 80% cut in staffing and would force the office to discontinue investigations.

Reuters reported Thursday that OIG leaders had informed employees that staff reductions would occur over the coming months. The office is also working with Congress on a possible legislative remedy, according to the report.

The staffing projections are the inspector general office’s assessment of the budget’s effect. FHFA has not adopted that characterization. Its public explanation centers instead on bringing OIG staffing and spending into line with peer regulators.

The budget fight comes as the inspector general continues active oversight work. On Sept. 29, the office released three audits, including a report finding that FHFA’s security controls were not effective in protecting its network and systems against internal threats. Another assessed oversight of multifamily credit-risk-transfer programs, while a third examined controls surrounding the agency’s suspended-counterparty program.

Congressional scrutiny adds another dimension

Several Democratic lawmakers criticized the budget reduction and accused FHFA Director Bill Pulte of weakening independent oversight. Their statements are political allegations and do not establish that the budget decision was made to impede any particular investigation.

Pulte rejected that criticism and defended the action as financial stewardship, arguing that the inspector general’s budget and staffing should be aligned more closely with comparable watchdog offices.

The immediate question is operational: how much investigative and audit capacity remains if the inspector general carries out the staffing reductions described to Congress. FHFA-OIG’s fiscal 2026 annual plan identified oversight priorities that include multifamily risk, information security, third-party and counterparty exposure, human-capital risk and documentation of key management decisions.

Congress could still alter the outcome. Until then, FHFA’s $20 million allocation stands as the agency’s budget decision, while its inspector general is warning lawmakers that the funding level would substantially reduce the office’s ability to investigate misconduct and fraud across the housing-finance system.