By Chris Prentice
NEW YORK, Oct 1 (Reuters) - The US Federal Housing Finance Agency's internal watchdog warned lawmakers that it will have to cut most staff and will not be able to do its job of policing misconduct, after the housing regulator slashed its budget.
The FHFA, which oversees mortgage giants Fannie Mae and Freddie Mac, on Wednesday cut the Office of Inspector General funding, saying it was aiming to bring it more in line with that of its peers. OIGs are nonpartisan offices housed within
agencies to root out financial waste and misconduct.
The budget cut comes after a tumultuous time at the historically low-profile agency that plays an integral role in the overall housing market. FHFA Director Bill Pulte has used the agency to target President Donald Trump's perceived foes. Pulte last year ousted the Acting IG and drove out hundreds of employees at the regulator.
FHFA said in a statement that the OIG headcount represents 18% of its total work force, or about 110 people based on the latest employment figures available on the Office of Management and Budget website.
In addition to representing an outsized portion of overall agency staff, the FHFA OIG has requested about 16% of the budget, compared to about 2% at other regulators, the regulator said in its statement.
But critics of the move said the comparison does not take into account that the inspector general's office also has responsibility as a watchdog for Fannie, Freddie and the federal home loan banks. Its law enforcement unit investigates fraud throughout mortgage markets.
STAFF CUTS COMING
The IG's Acting Principal Deputy James Hodge wrote to Senate and House lawmakers late on Wednesday, saying the cuts would reduce the office's annual budget to $20 million — 64% less than the budget the White House submitted to Congress. He said the office would have to cut 70%-80% of staff and discontinue investigations.
"Simply stated, 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," Hodge wrote in the letter seen by Reuters.
In a meeting on Thursday, leaders warned OIG staff that staff cuts would occur over the next several months due to the cuts, according to two people familiar with the matter, who spoke on condition of anonymity.
The office is working with Congress on a legislative fix but it was unclear how successful that effort would be, one of the sources and another person said.
A spokesperson for the OIG declined to comment.
NO WATCHDOG
Democratic lawmakers slammed the budget cuts.
“Bill Pulte is shutting down the independent watchdog that is responsible for investigating his misconduct – like efforts to weaponize private mortgage data in sham investigations against the president’s perceived political enemies,” a group of lawmakers including Senators Elizabeth Warren of Massachusetts and Dick Durbin of Illinois said in a statement.
The FHFA director defended the action. In a statement, Pulte said Warren "wants to kill good financial stewardship to align our IG's office with its peer IG Offices."
Last year, Pulte accused Trump's political targets Federal Reserve Governor Lisa Cook, New York Attorney General Letitia James and California's US Senator Adam Schiff of potential mortgage fraud, in a move that brought scrutiny of the FHFA director's own conduct by lawmakers and federal prosecutors.
Reuters previously reported that Pulte had bypassed ethics rules in those criminal referrals.
(Reporting by Chris Prentice in New YorkAdditional reporting by Marisa Taylor and Pete Schroeder in Washington; Editing by Bill Berkrot and Aurora Ellis)
