DACA Recipients Are Ineligible For FHA Mortgage Insurance Officially, But Lending To DACA Recipients And Other Immigrant Communities Is Subject To Many Unresolved Compliance Challenges
For the past six months, the mortgage lending industry has reported receiving conflicting messages from the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) regarding Deferred Action for Childhood Arrivals (“DACA”) recipients’ eligibility for FHA-insured mortgages. In December 2018, Senators Robert Menendez (D-NJ), Cory Booker (D-NJ), and Catherine Cortez Masto (D-NV) asked HUD to clarify whether it has “developed a policy regarding DACA recipients’ eligibility for FHA-insured mortgage loans.” If not, the senators requested HUD to “promptly provide clear and written guidance to FHA-approved lenders clarifying” that DACA recipients are not ineligible for FHA insurance simply because of their DACA status.  In response, HUD issued a letter explaining that is has “not implemented any policy changes” with respect to “FHA’s eligibility requirements” for non-U.S. citizens who are lawful residents. HUD reiterated that “non-U.S. citizens without lawful residency are ineligible for FHA financing.”  In early 2019, Fannie Mae issued a guide regarding “non-citizen borrower eligibility,” explaining that mortgages provided to DACA recipients are eligible to be purchased by Fannie Mae because DACA recipients are lawful nonpermanent residents because they have a valid Employment Authorization Document number.  During congressional testimony in April, HUD Secretary Ben Carson seemingly clarified that DACA recipients are eligible for FHA-insured mortgages. The secretary commented that “plenty of DACA recipients … have FHA mortgages,” and that he would be surprised if lenders received statements to the contrary from HUD staff.
Over the last several months, however, various news outlets have reported that HUD has told mortgage lenders that DACA recipients are ineligible for FHA-insured mortgages because they are not lawful residents.  Seeking clarity, Representative Pete Augilar (D-CA-31) wrote Secretary Carson a letter in early May, asking why HUD and FHA staff had informed lenders that mortgages to DACA recipients are ineligible for FHA insurance. In its June 2019 response, HUD removed the uncertainty regarding its position.  HUD’s letter stated that DACA recipients are ineligible for FHA-insured mortgages because they are not lawful residents. Notably, the letter indicated that “DACA recipients remain ineligible for FHA loans … because DACA does not confer lawful status” (emphasis added).  The letter also restates HUD’s position from its December letter that “FHA has maintained” its policy since 2003, thus “predat[ing] the creation of DACA.”
This is not the only legal issue surrounding mortgage loans to DACA recipients to which lenders must pay attention. For instance, determining such borrowers’ ability to repay pursuant to Regulation Z will continue to be a challenge, as DACA’s existence is litigated through the courts. Moreover, ensuring compliance with the Civil Rights Act of 1866, which affords people of color the same rights as white citizens when entering into contracts, and the Equal Credit Opportunity Act (“ECOA”), which allows lenders to consider immigration and residency status in extending credit, is another challenge to be carefully considered. Beyond DACA, lenders need to be cognizant of the various uncertain compliance challenges that attend to lending to the millions of creditworthy immigrants who live and work in the United States. There remains uncertainty how specific products and market strategies geared toward recent immigrants and limited-English proficiency speakers will be treated under fair lending laws, such as ECOA and the Fair Housing Act, along with statutes like the Fair Credit Reporting Act. Although HUD has provided some certainty on one of the many issues lenders face, lenders must be mindful of these other compliance challenges.