By Emily Flitter | Bloomberg

Elon Musk has found yet another target in Washington: Ginnie Mae, a stalwart of the nation’s home mortgage market.

This time, Wall Street is pushing back.

Lenders and developers are now working their contacts in Washington to try to protect Ginnie Mae, according to people with knowledge of the matter. They are sounding the alarm after Musk’s federal cost-cutting initiative, the so-called Department of Government Efficiency, dismissed dozens of employees at the government-owned corporation that stands behind some $2.7 trillion of mortgage-backed securities.

Also see: A comprehensive look at DOGE’s firings and layoffs so far

Over the past week, as much as a quarter of the agency’s 270-or-so employees have either resigned or been dismissed, according to separate people familiar with the matter who asked not to be identified disclosing private information.

The departures have left a gaping hole in Ginnie Mae, founded in 1968 to make housing more affordable by allowing banks to bundle mortgages into government-guaranteed bonds, thereby reducing the loan rates paid by millions of ordinary Americans.

Related: Mortgage insurer FHA to lay off nearly half its workforce

A spokeswoman for Ginnie Mae said the agency would continue to perform its necessary functions and make sure there was no disruption in the market.

Outsize Role

The development has raised concern that Ginnie Mae — a relatively small agency that actually turns a profit – might have trouble doing its job, particularly if the financial markets or the US housing market take a turn for the worse.

Given Ginnie Mae’s outsize role in getting funding for mortgages from bond markets, even a small hiccup could cascade through the housing market and the broader economy.

“That is the government equivalent of eating your seed corn,” David Dworkin, the president of the National Housing Conference, an affordable housing trade group, said of the reductions.

The consequences to the financial industry of DOGE’s federal cuts are already becoming apparent. Last week, mortgage lenders panicked when a key metric that helps dictate terms for new mortgage loans abruptly vanished from government websites. After an industry outcry, the so-called Average Prime Offer Rate then reappeared online.

Only five years ago, when Covid-19 sent the economy into a tailspin, Ginnie Mae stepped in to reassure mortgage companies bracing for a surge of missed payments.

DOGE firings

Representatives for DOGE fired probationary employees who had been hired just months earlier to help deal with cyberattacks on mortgage lenders, the people familiar with the matter said.

DOGE also fired most members of a new team working on a program that would help military service members living abroad close on mortgages without having to leave their posts.

In addition, several senior executives took the administration’s “Fork in the Road” deferred resignation offer and will be leaving over the next two months, vacating posts overseeing risk, capital markets and security operations, the people said.

Even before DOGE arrived, Ginnie Mae was stretched. A 2019 review by the Government Accountability Office, a nonpartisan watchdog, said the agency was understaffed and warned that it might not be able to handle future crises without expanding. In 2024, Congress granted additional funding to hire more staff. Ginnie Mae executives expected that adding employees would actually save money because it would let them do more work in-house instead of relying on expensive outside contractors.

Decreased efficiency

The organization guarantees bonds backed by mortgages made under government programs to consumers who might not be able to otherwise afford to buy a home. The bonds might be harder to sell to investors without explicit US support.

Payments to Ginnie Mae bond investors pass through its systems, and its staff make sure that the loan servicers in its program — which include non-bank giants like Rocket Mortgage LLC and Mr Cooper Group Inc., as well as major banks like JPMorgan Chase & Co. and Wells Fargo & Co., are managing their businesses well enough that they can pay investors on time.

When something goes wrong at a company that handles Ginnie Mae-backed loans, the agency steps in. Sometimes it has to take over a portfolio of loans and find another servicer for them or use its reserves to keep paying investors on time. It also helps servicers who experience operational problems.

“It’s hard to see how cutting employment” at Ginnie Mae makes sense, said Richard Estabrook, a strategist at Oppenheimer & Co. There might be “modest payroll savings but at the cost of decreased efficiency, and possibly oversight.”

–With assistance from Scott Carpenter at Bloomberg.