Blaming consumers for 'mortgage fraud' won't solve our housing crisis

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The Federal Housing Finance Agency is trying to blame mortgage fraud for our housing crisis — but this is a distraction that won't build more homes or lower mortgage rates. In his rapid-fire announcements on X, Trump appointee Director Bill Pulte posted that he fired 100 Fannie Mae employees for alleged mortgage fraud and set up a dedicated hotline to encourage whistleblowers to identify people who have falsely filled out mortgage applications. Recently, he also indicated he would like to "recall loans" where they have found deception. While FHFA has provided few details, Pulte has framed these actions under the political slogan of rooting out "waste, fraud, and abuse."

Consumers, lenders and policymakers should be skeptical. Blaming our housing crisis on alleged fraud distracts from the real problems that keep families from buying affordable homes. We have a chronic shortage of housing, historically high home prices relative to incomes, and a market that isn't working for low- and moderate-income buyers — especially in rural communities and among first-time homebuyers. Going on a witch hunt after fraud does not get us any closer to fixing these problems.

It is essential that mortgage lending is well regulated and responsible. This is why Congress passed the Dodd-Frank Act and created the Consumer Financial Protection Bureau — to prevent any repeat of the Wild West of exploitative mortgages and high-finance pyramid schemes that crashed the economy in 2008. While the administration has sought to eliminate the CFPB, these consumer protections remain essential to ensure that mortgages are fair and safe, to go after bad lenders and to prevent new forms of exploitative lending, from predatory payday loans to rent-to-own schemes. The crusade on cutting out fraud, however, does not seek to actually strengthen consumer protections: In one of his first acts, Director Pulte put the consumer protection team of the FHFA on administrative leave.

Rather, the narrative is spun that consumers are gaming the system to get mortgages they shouldn't have gotten. But mortgage fraud impacts less than 1% of all loans and is perpetuated as much by lenders as borrowers. This narrative is harmful and a distraction. It puts the blame on consumers, while ignoring the real problem: We have too few homes that working families can afford to buy. It also lays the groundwork for justifying broader restrictions on who even deserves access to mortgages.

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We've been here before. Again and again, public concern about "fraud" has been stoked to justify cutbacks and sidestep more difficult policy conversations. In the 1990s, political leaders across the spectrum seized on the myth of the "welfare queen" and exaggerated stories of individuals cheating public benefit programs to enact deep cuts to the social safety net. Entire generations of lower-income families, particularly families of color, were stigmatized as part of a supposed culture of dependency. Meanwhile, structural drivers of poverty such as job loss, urban disinvestment and housing discrimination went largely unaddressed.

When "fraud" becomes the headline, real solutions get pushed to the margins. In the case of housing, that real crisis is about housing affordability and supply.

Instead of blaming borrowers, the FHFA should be using its considerable powers as our nation's top housing regulator to push for meaningful housing reform. That means expanding access to safe and sound mortgage products in underserved markets such as rural areas and manufactured housing communities, through the market powers of Fannie Mae and Freddie Mac. FHFA can also drive the trillion-dollar Federal Home Loan banks to invest more in affordable housing grants and expand community lending programs to build more housing. Finally, the agency has considerable leverage to support and enforce building, consumer, and renter protection standards, all of which could help safely lower housing costs and expand homeownership for more Americans.

The finger-pointing and political rallying cry of fraud is a distraction that will not help us build more homes nor will it lower housing costs. To address our housing crisis, we need consumer protections rather than consumer blaming and systemic changes rather than scapegoating.