Workforce Cuts Trigger Federal Housing Finance Agency's Accounting Problems

Why it Matters

The federal agency responsible for overseeing the mortgage giants Fannie Mae and Freddie Mac has a bookkeeping problem that traces back directly to the wave of workforce cuts that swept through Washington in 2025.

A new Government Accountability Office audit of the Federal Housing Finance Agency (FHFA) found that the agency failed to properly classify costs associated with its own workforce reductions in its financial statements, a lapse that auditors flagged as a significant deficiency.

FHFA sits at the center of the U.S. housing finance system, overseeing institutions that back trillions of dollars in home mortgages. When its internal accounting controls slip, the integrity of the financial picture it presents to Congress and the public is at risk.

The Bigger Picture

Created in 2008 during the financial crisis, the Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, which are the backbone of the U.S. mortgage market. It has operated as conservator of Fannie Mae and Freddie Mac since the government took them over during the 2008 collapse, and it remains one of the more consequential financial regulators in Washington.

The FHFA financial controls audit released April 23, 2026, covers fiscal year 2025 and is the latest in that series. For the 17th consecutive year, FHFA received an unmodified, or "clean," audit opinion on its financial statements, meaning the numbers themselves were ultimately found to be accurate. But the process that produced those numbers raised a red flag.

What the Auditors Found

The audit centered on how FHFA handled the accounting fallout from significant workforce reductions it undertook during fiscal year 2025. When an agency cuts its workforce at scale, it typically incurs costs that federal accounting standards require to be reported separately.

In FHFA's case, those costs included voluntary separation incentive payments (VSIPs), essentially buyouts offered to employees to encourage them to leave voluntarily. Federal accounting standards are specific about how such costs must be disclosed, and FHFA's existing internal controls were not equipped to catch the classification problem.

According to the GAO report, FHFA "did not initially determine" that those workforce reduction costs should be reported separately in its financial statements, as required under U.S. generally accepted accounting principles for federal entities. The lapse was caught during the audit process and corrected before the final statements were issued, which is why the clean opinion was preserved. But the fact that the agency's own review process missed it in the first place is what prompted GAO to flag a significant deficiency in the financial statement review process controls.

The Workforce Reduction

FHFA's staffing cuts during fiscal year 2025 were part of a broader federal downsizing effort under the Trump administration's second term, which included the Department of Government Efficiency's push to reduce the size of the federal workforce across agencies. Voluntary separation incentive payments were a tool used widely across the government to facilitate those reductions.

The accounting challenge FHFA faced reflects a problem that auditors may encounter across other agencies that underwent similar workforce changes. Existing internal controls were designed for routine operations, not for the scale or novelty of what happened in 2025. When an agency's financial review processes are built around normal operating conditions, an unusual event, like a significant round of buyouts, can fall through the cracks.

Bottom Line

GAO issued one new recommendation from the fiscal year 2025 audit. It asks that FHFA develop clearer, more specific guidance to ensure that costs tied to major workforce reductions, including VSIPs, are properly identified and reported separately in financial statements in conformity with federal accounting standards compliance requirements.

As Congress weighs the broader consequences of the federal workforce reductions that began in 2025, the FHFA case shows how rapid downsizing can create downstream complications, not just in operations, but in the financial reporting that agencies use to account for public funds.

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