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Dreamers denied: Evidence mounts FHA is not backing DACA mortgages

Lenders back down as government actions disrupt home loans

Despite the Department of Housing and Urban Development stating recently that its policies have not changed in regards to the Federal Housing Administration backing mortgages for Deferred Action for Childhood Arrivals recipients, it appears that the opposite is actually the case.

Or at least that’s how the mortgage lending industry is reacting.

In the wake of HousingWire’s original reporting, numerous lenders reached out and said that they’ve been told directly by a HUD representative that DACA recipients, also called Dreamers, are no longer eligible for FHA mortgages.

Now, a new HousingWire investigation has uncovered lender bulletins or guidelines from a dozen different lenders each stating that Dreamers are not eligible for FHA financing.

In most cases, the lenders do not list a reason for why Dreamers are ineligible for FHA financing, but two state housing finance agencies do provide a reason (click on any of the links below to see the original documents).

The Connecticut Housing Finance Agency, for example, recently published a lender bulletin that states: “FHA now stipulates that Non-Permanent Resident Alien Guidelines require lawful residence for FHA loans. Although Deferred Action for Childhood Arrivals (DACA) immigrants are in the United States legally, under the new administration they are not considered to have lawful residency.”

According to the bulletin, as of one month ago, “DACA applicants will not be eligible for first or second mortgage loan financing approval in any CHFA mortgage loan product, conventional or government.”

A similar notice was posted on the website of the Idaho Housing and Finance Association. The IHFA notice stated:

Effective immediately, Idaho Housing will not allow loans to be locked for DACA borrowers. For loans that are locked or already closed and not yet purchased by Idaho Housing, we will need the following documentation:

1. Underwriter acknowledgement in writing that the loan was approved with the knowledge that the borrower is a DACA borrower.

2. Indemnification letter from the lender indemnifying Idaho Housing and Finance Association of any and all losses directly attributed to the loan being approved and closed with a DACA borrower.

Gateway Mortgage Group also provides a more detailed explanation on its policies surrounding DACA borrowers. In an announcement data Aug. 3, 2018, Gateway states that is no longer accepting mortgage applications for DACA borrowers:

Due to recent Executive Orders and court actions regarding the Deferred Action for Childhood Arrival program (“DACA”), Gateway has reviewed the complex issue of whether we will purchase loans to participants in the DACA program.  Based upon its review of relevant agency, investor and insurer guidelines and requirements, Gateway has determined that unless and until there is formal action taken which clearly provides that DACA loans are eligible to be purchased, insured, guaranteed and securitized, Gateway will not accept loan applications or purchase loans for borrowers who are subject to a DACA (C-33 designation).  These same rules apply to any other non-resident who is unable to meet agency, investor, or insurer requirements relative to proof of legal residency.

Other lenders are far simpler in their declaration that Dreamers are not eligible for FHA mortgages.

NewRez, which recently changed its name from New Penn Financial, lists “Borrowers with Deferred Action for Childhood (DACA) approval” under a category titled “Ineligible Borrowers” on its FHA lending guidelines for correspondent and wholesale lenders.

Similar declarations are found with several other lenders, including:

  • loanDepot, which states that borrowers with DACA states are not eligible for a loan
  • JMAC Lending, which lists DACA borrowers as ineligible
  • CMG Financial, which states: “As category C33 work status is under a deferred action and does not provide lawful status, borrowers working under DACA authorization are not eligible for financing under CMG loan programs and are not considered for exception approval
  • Provident Bank, which states: “Borrowers with EAD Cards issued under DACA (Deferred Action For Childhood Arrivals) – Form I-821D (EAD Code C33) are ineligible for FHA Financing
  • Land Home Financial Services, which lists DACA under a section titled “Ineligible Borrowers,” adding “Deferred Action for Childhood Arrival do not have a path to a permanent resident status, however some recipients can obtain residency if they meet certain criteria. DACA is not a legal immigration status.”
  • REMN Wholesale, which lists “Loans where a borrower(s) has a Deferred Action for Childhood Arrivals (DACA) status,” under a section titled “Ineligible Transactions”
  • American Financial Network, which states on its FHA loans investor overlay matrix “Borrowers with Deferred Action for Childhood Arrivals (DACA) status are not allowed”
  • Michigan Mutual, which states: “Borrowers with an EAD Code of C33 (defined as aliens present in the United States under Deferred Action for Childhood Arrivals (DACA)) are not eligible.”

Other lenders have told HousingWire privately that they’ve been told by senior level HUD personnel that the FHA is not backing DACA mortgages.

The bottom line is that without clear and definitive information from HUD and the FHA about whether they’re backing DACA mortgages, lenders are taking matters into their own hands so they’re not left without a buyer for the mortgages they originate.

Without a buyer for the mortgage, they can’t originate another one. That’s how lenders make money. And investors aren’t going to buy a mortgage if they don’t think the FHA is backing it. That’s leading lenders to not originate FHA mortgages for Dreamers.

One lender previously told HousingWire that only one investor they work with is willing to buy Dreamer loans right now, but only if they are conventional loans, i.e. those backed by Fannie Mae or Freddie Mac.

Add all of this together and one starts to see that it’s becoming increasingly more difficult for a Dreamer to get any kind of mortgage, let alone an FHA one. In fact, one potential DACA borrower went so far as to reach out to us, emboldened by recent HousingWire coverage, to say he’d applied for an FHA mortgage, hoping he would be able to get one. He was denied.

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