Democrats Cry Foul Over Funding Cuts to Watchdog of Top Mortgage Regulator

Democrats traded barbs with the Trump administration's housing czar this week, as the Federal Housing Administration said it was cutting funding for its inspector general—an internal watchdog for the agency that oversees Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency Office of Inspector General—which audits FHFA and its programs—informed the Senate Committee on Banking and Urban Affairs that its budget would be more than cut in half. While FHFA initially planned to allot the OIG $55 million in the 2027 fiscal budget, that will be reduced to $20 million.

In a letter, acting FHFA Inspector General James Hodge expressed concern that this would lead to drastic cuts at the agency.

On X, FHFA Director Bill Pulte called the move "good financial stewardship to align our IG’s office with its Peer IG Offices." Pulte has enacted other changes at FHFA, cutting its budget while calling for investigations of President Donald Trump's political enemies.

Hodge said in the letter he first found out about the planned cuts on Aug. 31. They could mean cuts of up to 70% to 80% of its staff. He said it could also reduce the OIG's ability to investigate fraud.

Since 2011, the OIG's criminal enforcement program has secured more than 1,270 convictions and nearly $75 billion in restitution, according to its information.

"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 said in the letter.

In response, 11 Senators from the committee, led by ranking member Elizabeth Warren (D-MA), castigated the move, which they said would hamper oversight of the agency.

"You must publicly answer to Congress about your attempt to gut your agency’s independent watchdog," they said in a response letter.

FHFA details cuts

On its About page, the OIG says it responsibilities "differ significantly from that of the typical federal financial regulator." That's because FHFA serves as conservator and supervisor of Fannie Mae and Freddie Mac and oversees the 11 Federal Home Loan Banks. So the office examines these roles in addition to some other duties more typical of a government inspector general.

FHFA and the OIG aren't funded through the typical federal budget process. Instead, they're paid for by assessments collected from the regulated entities. FHFA then allocates to OIG, typically by request. The OIG was allocated $55 million in 2023, $57 million in 2024, and $58.5 million in 2025.

The FHFA, in a separate statement this week, explained its plans to reduce funding and headcount at the OIG. It called the office too big relative to other offices of its kind, saying the FHFA OIG requested funding that is 16% of its agency's operating budget.

The average OIG office in the government is funded at about 2% of its agency's operating budget, FHFA said.

"As stewards of federally authorized resources, FHFA must ensure that all expenditures reflect fiscal prudence while fully meeting its statutory obligations," FHFA said in a statement. "FHFA's decision reflects its responsibility to ensure that every dollar is used responsibly, efficiently, and for a clearly documented purpose."

The FHFA's oversight arm has 18% of the staff of the overall agency, while the average OIG is about 4%, FHFA said. It called this staffing level "unmatched anywhere in the federal oversight community."

In return, Hodge said in the letter that the OIG has different roles, and its oversight includes the "enormous risks to the U.S. financial system inherent in the operations of the regulated entities."

Democrats call on Pulte to resign

In a joint statement, Warren and other top congressional Democrats—Senate Majority Leader Chuck Schumer of New York, House Minority Leader Hakeem Jeffries of New York, and Rep. Maxine Waters of California, who is ranking member of the House Financial Services Committee—called on Pulte to resign.

The Democrats said Pulte was “shutting down the independent watchdog that is responsible for investigating his misconduct—like his efforts to weaponize private mortgage data in sham investigations against the President’s perceived political enemies."

The Democrats said Pulte was “shutting down the independent watchdog that is responsible for investigating his misconduct—like his efforts to weaponize private mortgage data in sham investigations against the President’s perceived political enemies."

They've been critical of Trump and Pulte's handling of the agency more broadly. The inspector general personally is appointed by the president. Hodge has been in the role in an acting position since Trump removed Joe Allen in November.

"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. Bill Pulte should resign, and if he does not, Congress must hold him accountable.”

Warren has long been a Pulte critic. She's repeatedly called for his resignation in the past, accusing him of abuse of his power.

Pulte insulted Warren on X in response, referencing controversy over the Democrat's prior claims of Native American ancestry.

"Pocahontas is upset because we don’t want reckless spending by bureaucrats but she hasn’t thanked me for President Trump allowing Americans rent history to count toward American’s credit score," he posted. "She is a phony and has all the wrong priorities."