Administrative Realignment and the Deregulatory Frontier: A Comprehensive Analysis of the 2026 HUD and FHA Oversight Proceedings

Jan 31

Jan 21, 2026 ( https://www.congress.gov/event/119th-congress/house-event/118872)

The convening of the House Committee on Financial Services on January 21, 2026, represents a seminal moment in the trajectory of American housing policy, signifying a decisive shift from the social-investment paradigms of previous decades toward a rigorous framework of regulatory retrenchment and market-based supply intervention. This oversight hearing, titled "Oversight of the Department of Housing and Urban Development and the Federal Housing Administration," served as the primary venue for Secretary Scott Turner to articulate the Trump administration’s vision for a restructured Department of Housing and Urban Development (HUD) that prioritizes fiscal accountability, internal efficiency, and the systematic removal of federal "roadblocks" to housing production.1 The proceedings underscored an institutional pivot where the federal government’s role is increasingly defined not as a direct provider of housing subsidies, but as a facilitator of private-market efficiency through the dismantling of what the committee majority described as "misguided regulations".1

The Ideological Underpinnings of the Turner Administration at HUD

The testimony provided by Secretary Scott Turner reflects a philosophy of "results-oriented" governance, characterized by an emphasis on data-driven decision-making and a skepticism toward long-standing federal programs that the current administration views as stagnant or counterproductive.4 At the heart of this ideological shift is the belief that the "Biden Inflation" and the resulting increase in home construction prices were exacerbated by a persistent shortage of housing supply, which in turn was driven by federal overreach in building codes and environmental reviews.1 Secretary Turner highlighted that the status quo was failing the most vulnerable Americans and that significant institutional changes were required to align HUD’s activities with the "America First" agenda.5

The Transition from Direct Investment to Regulatory Reform

The committee majority, led by Chairman French Hill, framed the oversight process as a necessary redirection of HUD's mission to address a high cost of living that has made homeownership unattainable for many first-time buyers.1 The motivation behind the hearing was rooted in the premise that HUD had drifted toward bureaucratic micromanagement, particularly in its oversight of local Public Housing Authorities (PHAs) and its enforcement of fair housing rules.1 By refocusing HUD on "core missions"—such as streamlining mortgage insurance and supporting workforce housing through deregulation—the administration seeks to leverage private capital rather than taxpayer-funded grants as the primary engine of housing growth.1

This shift is most visible in the administration’s support for the "Housing for the 21st Century Act," which aims to modernize programs that have lacked reauthorization for decades.2 The internal logic of the hearing suggests that by updating these "outdated" programs, the federal government can reduce the risk to taxpayers while simultaneously expanding the inventory of affordable starter homes.1

Fiscal Accountability and the Minnesota Fraud Case Study

A prominent theme of the hearing was the imperative of safeguarding taxpayer dollars, a concern catalyzed by reports of systemic fraud in federally funded programs. Congressman Tom Emmer and Secretary Turner highlighted a "massive $9 billion welfare fraud scheme" in Minnesota as a cautionary tale of oversight collapse.10 Turner confirmed that HUD investigators had specifically identified nearly $85 million in fraudulent federal housing assistance payments in Minnesota during the final year of the previous administration.10

The Mechanism of Fraud and Oversight Response

The investigation revealed that fraudulent payments were issued to deceased residents and to individuals whose Social Security numbers could not be verified, a factor that Secretary Turner suggested often indicates illegal residency.10 This finding has been used to justify a broader policy of auditing PHAs and tightening eligibility requirements for FHA-insured mortgages.3 The administration’s response involves "boots on the ground" in Minnesota and the deployment of a new task force aimed at rooting out criminal and "nefarious" activity within housing authorities nationally.7

Minnesota Fraud Investigation Data Points (FY 2025/26)	Value/Impact
Total Identified Fraudulent Housing Payments	$85 Million 10
Total Welfare Fraud Scheme (Statewide)	$9 Billion 10
Payments to Deceased Residents	$500,000 10
Payments to Unverified Social Security Numbers	$250,000 10
Total HUD Assistance to Minnesota	$150 Million 10

The implications of these findings extend beyond Minnesota. The committee used this data to argue for H.R. 225, which would require the HUD Inspector General to testify annually before Congress to report on efforts to detect and prevent fraud, waste, and abuse.11 This legislative move is intended to institutionalize a higher level of scrutiny over HUD’s discretionary budget, which exceeded $89 billion in fiscal year 2025.3

Legislative Catalysts: The Housing for the 21st Century Act

The primary legislative focus of the January 21 hearing was H.R. 6644, the "Housing for the 21st Century Act," which the committee characterized as a bipartisan effort to slash red tape and modernize federal housing programs.1 The bill addresses several distinct clusters of housing policy: regulatory streamlining, manufactured housing innovation, and finance expansion for underserved markets.12

Regulatory Streamlining and NEPA Reform

The Act proposes significant changes to the National Environmental Policy Act (NEPA) review process for federally supported housing activities.13 By expanding categorical exclusions for small-scale construction, infill development, and property acquisition, the bill aims to reduce the delays and administrative costs that often hinder affordable housing projects.13 Proponents argue that the current NEPA framework is ill-suited for urban infill projects, where the environmental impact is marginal but the regulatory burden is substantial.12

Manufactured Housing and the Permanent Chassis Rule

A critical provision of H.R. 6644 is the revocation of the HUD requirement that manufactured homes must include a permanent chassis.9 Historically, this rule has limited the ability of manufactured home builders to innovate and has kept these units within a specific, often less valuable, regulatory category.7 By removing this requirement, the bill allows manufactured housing to more closely resemble site-built homes, facilitating easier placement on permanent foundations and potentially improving the long-term appreciation of these properties.9

Key Provisions of the Housing for the 21st Century Act	Objective
NEPA Categorical Exclusions	Expedite small-scale and infill development 14
Revocation of Permanent Chassis Rule	Increase manufactured housing innovation/affordability 12
FHA Small-Dollar Mortgage Pilot	Expand access to loans under $100,000 13
Study of Federal Uniform Building Code	Evaluate impacts on construction cost/time 13
HOME Program Modernization	Expand eligibility for workforce income households 12

The Deregulatory Debate: Energy Codes and Building Standards

The hearing surfaced a deep-seated conflict between federal sustainability goals and the immediate necessity of reducing construction costs. The National Association of Home Builders (NAHB) provided testimony criticizing the imposition of the 2021 International Energy Conservation Code (IECC) and ASHRAE 90.1-2019 standards on new construction supported by HUD and the USDA.16

The Cost of Efficiency

Analysis from Home Innovation Research Labs, cited during the hearing, indicates that compliance with these modern energy codes adds thousands of dollars to the price of a typical new home.16 In high-cost markets like Kansas City, Missouri, builders reported that these mandates increased the cost of a single-family home by up to $31,000.16 The committee majority argued that at a time when housing affordability is at a crisis level, these well-intentioned goals are pricing families out of the market and reducing the supply of entry-level housing.1

Furthermore, the NAHB argued that homes built to modern codes adopted since 2000 already perform well in disaster events, suggesting that the resilience gains from the most recent code cycles are marginal compared to the substantial administrative and financial burdens they impose.16 The debate over a potential federal uniform residential building code also intensified, with the Government Accountability Office (GAO) being directed to study whether such a code would streamline construction or merely add another layer of federal micromanagement.12

Homelessness Policy: The "Housing PLUS" Paradigm Shift

One of the most significant open items from the hearing is the transition from the "Housing First" model to the "Housing PLUS" approach. For nearly two decades, federal policy has prioritized providing stable housing as a prerequisite for services. However, the current administration, supported by Representative Andy Barr’s "Housing PLUS Act" (H.R. 5618), seeks to pivot toward a model where funding is increasingly directed to providers that require "wraparound services" such as addiction treatment or job counseling.2

The Ideological Clash over Wraparound Services

Secretary Turner testified that "vulnerable Americans benefit when we get them real treatment," framing the Housing PLUS model as a way to ensure that individuals not only find housing but also achieve long-term recovery and become productive citizens.3 The bill prevents HUD from restricting Continuum of Care (CoC) funds to providers based on their requirement for services or their status as faith-based organizations.2 It also mandates that at least 30% of CoC funding be dedicated to these "Housing PLUS" providers.2

Democratic members and housing advocates have expressed grave concern over this shift, arguing that it undermines evidence-based programs that have successfully reduced homelessness by ensuring housing stability first.4 They suggest that requiring treatment as a condition for housing can lead to higher rates of relapse and return to homelessness for those with the highest needs.4

Homelessness Policy Comparison	Housing First (Traditional)	Housing PLUS (H.R. 5618)
Primary Goal	Immediate housing stability	Long-term recovery/treatment 3
Service Requirement	Optional/Voluntary	Often mandatory/wraparound 2
Funding Mandate	Priority for low-barrier	30% set-aside for service-based 2
Provider Eligibility	Open to all qualifying	Explicit protection for faith-based 2

Fair Housing Enforcement and the "Phantom Discrimination" Debate

The hearing revealed a fundamental disagreement over the interpretation and enforcement of the Fair Housing Act. Ranking Member Maxine Waters and Representative Al Green criticized the administration for what they termed the "evisceration" of fair housing investigations.4 The controversy centers on the withdrawal of the "Affirmatively Furthering Fair Housing" (AFFH) rule and the proposed elimination of the 2013 disparate impact regulations.4

Redefining Discrimination

In response to allegations that HUD has failed to address housing discrimination, Secretary Turner stated that the department is investigating "real discrimination, not phantom discrimination".4 This language suggests a shift away from investigating systemic or structural bias (disparate impact) toward a focus on individual, intentional acts of discrimination. Turner defended the withdrawal of the AFFH rule as a return to "local control," arguing that federal mandates on local zoning were an inappropriate use of HUD’s authority.4

Critics argue that this shift has resulted in the closing of regional offices and the reassignment of fair housing staff, leaving the agency unable to uphold its civil rights mandates.4 Specifically, Representative Rashida Tlaib raised the issue of protections under the "Violence Against Women Act" (VAWA), noting that fair housing staff reassigned from these cases has left survivors of domestic violence and stalking without adequate protection.4

Institutional Restructuring: The DRP and Staffing Discrepancies

A significant administrative controversy emerged regarding the loss of HUD personnel. Secretary Turner testified that 2,400 employees separated voluntarily through the Deferral for Resignation Program (DRP).4 He characterized this as a successful "results-oriented decision" to streamline the department.4

Voluntary vs. Nonvoluntary Separations

However, Democratic members pressed Turner on whether these separations were truly voluntary, citing whistleblowers placed on administrative leave and the impact of Reductions in Force (RIFs).4 Ranking Member Waters argued that the loss of over 780 specialized employees has weakened HUD's ability to effectively administer housing programs and enforce laws, leaving the agency as a "shadow" of its former self.3 Advocates noted that the reinstatement of 81 CDFI Fund employees who had received RIFs in October 2025 highlights the ongoing instability within the administration’s personnel management.18

HUD Workforce and Personnel Metrics (2025-2026)	Count/Status
Voluntary Separations (DRP)	2,400 4
Reported Staff Loss (Waters)	780+ 3
Reinstated CDFI Fund Employees (Nov 2025)	81 18
DRP Impact on Fair Housing Staff	Significant/Reassigned 4

FHA Financial Stability and Mortgage Innovation

The Federal Housing Administration's (FHA) performance was a key component of the oversight, with Secretary Turner defending the agency’s financial health. He noted that the FHA’s mortgage insurance fund has maintained a capital ratio above statutory minimums, providing a buffer against market volatility.3

The Role of Small-Dollar Mortgages

One area of bipartisan interest is the expansion of small-dollar mortgages. The Housing for the 21st Century Act directs HUD to propose a pilot program to expand access to FHA-backed mortgages under $100,000.13 Currently, many lenders avoid these loans due to fixed costs that make them less profitable than larger mortgages.12 By adjusting mortgage insurance pricing and underwriting rules, HUD hopes to incentivize lenders to re-enter this market, which is critical for rural areas and the purchase of affordable starter homes.13

Manufactured Housing as a Source of Affordable Supply

The modernization of manufactured housing standards is also expected to impact the FHA’s portfolio. The removal of the permanent chassis rule, combined with higher FHA loan limits for manufactured homes and accessory dwelling units (ADUs), is designed to unlock a massive amount of "missing middle" housing supply.15 Witness Tobias Peter of the AEI Housing Center emphasized that auctioning off just 0.3% of federal land for housing, coupled with smaller lot sizes and reformed manufactured housing rules, could produce one million housing units over a decade.19

Stakeholder Impacts: Who is Affected by the Hearing

The policy shifts discussed during the hearing have profound implications for a diverse range of stakeholders in the housing market.

Homeowners and First-Time Buyers

Potential homeowners are the primary targets of the proposed deregulation. By removing "government roadblocks" and modernizing codes, the committee aims to lower the "upfront costs" that often price families out of homeownership altogether.1 The FHA’s focus on small-dollar mortgages and manufactured housing is specifically designed to provide pathways for working-class households to build wealth.13

Renters and Mixed-Status Families

Low-income renters face a more uncertain landscape. The administration’s proposed "mixed-status rule" would force families where some members lack legal residency to either separate or face eviction from HUD-subsidized housing.4 Representative Nydia Velazquez noted that these families make up less than 1% of the multifamily program, but the rule’s implementation could lead to a significant increase in homelessness among these vulnerable populations.4 Furthermore, the shift toward work requirements in public housing—despite high existing employment rates—adds an additional layer of administrative risk for renters.4

Developers and Housing Providers

For developers, the hearing signaled a move toward a more predictable regulatory environment. The National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA) highlighted the rising costs of insurance (up 26.2% in 2023) and taxes as primary drivers of rent increases.8 The administration’s focus on reducing federal "pass-through" costs and streamlining NEPA reviews provides a potential pathway for developers to maintain project viability in an era of high interest rates.8

Local Governments and Tribal Communities

Local governments are affected by the "carrot or stick" approach of the ROAD to Housing Act, which uses federal grants to encourage zoning reform.15 Communities that adopt reforms—such as eliminating parking minimums or legalizing ADUs—may see increased technical assistance and funding, while those that resist may face penalties or a loss of federal support.15 For tribal communities, the reauthorization of NAHASDA remains a critical but unresolved issue, with Turner expressing support but no immediate legislative timeline.4

The Mathematical Context of Housing Supply Elasticity

To understand the impact of the proposed reforms, it is useful to consider the mathematical relationship between lot size, construction cost, and affordability. The American Enterprise Institute (AEI) proposes that smaller lots are essential for improving affordability.19

If is the total cost of a home, is the land cost, and is the building cost:

The land cost is a function of the price per square foot of land () and the lot size ():

By mandating large lot sizes through zoning, local governments artificially inflate . The AEI’s proposed "bounty" of $25,000 for homes on lots under 5,000 square feet is designed to offset the building costs , making smaller homes more profitable for developers to build.19 Their research estimates that between 0.33% to 1.33% of single-family detached homes could be converted to higher-density infill each year if these barriers are removed, significantly increasing the supply response.19

Open Items and Unresolved Debates

The hearing concluded with several critical items remaining open for further investigation or legislative action:

CDBG-DR Investment in Wildfire Recovery: Representative Brad Sherman criticized HUD for providing "zero dollars and zero cents" to victims of the Los Angeles wildfires, despite Secretary Turner’s theoretical support for CDBG-DR funding.4 The lack of actual disbursement remains a significant point of conflict.
The Future of Fannie Mae and Freddie Mac: While not the primary focus, the privatization of the GSEs was mentioned as a goal for 2026, with Chairman Hill and others cautioning against a fast-paced approach that could destabilize the market.5
The "Violence Against Women Act" Enforcement: The refusal of Secretary Turner to commit to returning fair housing staff to VAWA cases remains a major point of contention for housing advocates.4
The HUD Inspector General’s Role: The potential passage of H.R. 225 will determine the level of transparency and frequency of reporting on internal fraud and mismanagement.11
State-Administered Block Grant Proposals: The Trump administration’s proposal to combine five major federal housing programs into a single state-administered block grant is estimated by the Urban Institute to put 2.1 million families at risk of losing rental assistance.22 This proposal has met with skepticism even from Republican subcommittee chairs.22

Importance and Broader Implications of the Hearing

The January 21 oversight hearing is of paramount importance because it marks the formal transition of HUD from an agency of social investment to one of market-based structural reform. The motivation behind the hearing—as stated by Chairman French Hill—was to reaffirm principles of accountability and innovation in a government that had become "weighed down" by regulation.1

For the broader economy, the success or failure of these initiatives will dictate the trajectory of shelter inflation, which accounted for nearly 37% of the monthly increase in the all-items index as of December 2024.17 If the Housing for the 21st Century Act and related deregulatory measures can successfully unlock new supply, it could provide a much-needed cooling effect on the cost of living. However, if the loss of staff and the shift in homelessness policy result in a "shadow" department unable to manage its core missions, the housing crisis may exacerbate, particularly for the most vulnerable populations who rely on federal support.3

The hearing underscores that housing is no longer just a social issue but a critical component of national economic and fiscal policy. The ideological divide between the "abundance-plus-affordability" approach advocated by some researchers and the "investment-first" model proposed by Ranking Member Waters’ Housing Crisis Response Act represents the central tension in American domestic policy today.23

Stakeholder Analysis Table: Ripple Effects of Policy Shifts

Stakeholder Group	Primary Impact	Mechanism
First-Time Homebuyers	Increased inventory of starter homes	Deregulation of lot sizes and ADUs 19
Manufactured Housing Industry	Increased market valuation	Removal of the permanent chassis rule 9
Public Housing Residents	Potential work requirements	New HUD "Work Requirement Rule" 4
Fair Housing Whistleblowers	Reduced institutional protection	DRP program and staff reassignments 4
Veterans	Improved income eligibility	VASH program disability exclusion 12
Multifamily Developers	Lowered NEPA compliance costs	Expanded categorical exclusions 13

Conclusions

The oversight proceedings of January 2026 have set the stage for a dramatic reimagining of the federal role in the housing market. By prioritizing supply-side interventions and fiscal integrity—exemplified by the Minnesota fraud investigation—the current administration is attempting to decouple housing affordability from federal spending. The primary conclusions from this hearing are that HUD will continue its internal downsizing to drive efficiency, FHA will focus on small-dollar mortgage innovation, and the department will increasingly rely on "local control" as a justification for withdrawing from federal zoning and fair housing mandates.

However, the "open items" regarding disaster relief funding, VAWA protections, and the impact of block-granting programs suggest that the transition will be marked by intense legislative and legal challenges. As the 119th Congress progresses, the balance between market efficiency and social protection will remain the defining debate of the American housing sector. The success of the "Housing for the 21st Century Act" and its ability to reconcile with the Senate's ROAD Act will be the primary metrics by which the efficacy of this new era of housing policy is judged.

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Victor Acorda