July 12, 2018

FHA on DACA Borrowers

Rob Chrisman

First off, anyone hoping for a mortgage insurance premium cut this year will probably be disappointed. Per Brian Montgomery, the health of the Mutual Mortgage Insurance Fund just isn’t where it needs to be.

Joan Timm with Summit Mortgage and several others have asked me about government guidelines regarding DACA borrowers. Looking briefly and Freddie and Fannie, Joan wrote, “From my correspondence with FNMA and FHLMC, they too are classifying DACA Borrowers as ‘Non-U.S. Citizen, not lawfully in the U.S.’; therefore, not eligible for financing.”

This commentary discussed DACA borrowers in the autumn of 2016 and it probably still aligns with HUD’s current position on DACA borrowers. “There are millions of these people here in the US and many of them are trying to apply for loans. Many of these loans are closing even though most lenders agree they should not. Our company had a private call with some individuals at HUD who understood the issue and confirmed that borrowers with deferred action status are not eligible for FHA financing because they are not on a pathway to residency and do not meet the guidelines printed in the manual. Additionally, these loans are clearly not eligible for USDA financing as GUS requires you to enter information that identifies their status in the US. When you do so, GUS will tell you that the borrower is ineligible. If you are a lender who currently accepts borrowers with a deferred action status, you may want to consult your attorney for legal advice.”

And the esteemed Potomac Partners had a call saying that DACA borrowers are not eligible for FHA financing.

Perhaps most DACA borrowers have probably closed undetected under FHA financing because HUD has nothing published regarding the ‘Category’ a Borrower’s EAD card is issued under (few were monitoring the “Category” of the Borrower’s EAD card on FHA loans and only recently became aware of Category C-33 being an identification of a DACA Borrower). Although they are a small percentage of originations, many feel HUD has left FHA Lenders very exposed by not publishing that EAD cards issued under Category C-33 need to be underwritten under paragraph (c) of Section (9) for Residency Requirement.

Ms. Timm wrote, “I have not discussed DACA Borrowers with the VA, but a DACA applicant under VA financing would be rare and would also need to be underwritten directly by the VA (e.g. Veteran purchasing with a non-Veteran they are not married to). And really, all the government agencies should define eligibility of DACA Borrowers the same.”

Since HUD published Handbook 4000.1, lenders have been told to “follow what is published in the 4000.1”. Some believe that a DACA borrower holding a valid EAD card should be eligible for FHA financing until HUD publishes that EAD cards issued under Category C-33 are not eligible for FHA financing. Because without that detail most DACA Borrowers will meet all of HUD’s published requirements under HUD Handbook 4000.1 Section II.A.1.b.ii. (A).(9).(b) for a ‘Non-Permanent Resident Aliens’.

Getting a little more into the weeds, a Borrower meeting all of HUD’s published requirements under HUD Handbook 4000.1 Section II.A.1.b.ii.(A).(9).(b) for a ‘Non-Permanent Resident Aliens’ is no longer eligible for FHA financing because HUD is stating a Borrower holding a valid EAD (Employment Authorization Document) card under a Category C-33 (Which is the EAD code for an alien who has been granted Deferred Action for Childhood Arrivals – DACA) pushes them out of Section II.A.1.b.ii.(A).(9).(b) and into Section II.A.1.b.ii.(A).(9).(c) for ‘Non-U.S. Citizens without Lawful Residency’; which have never been eligible for FHA financing. Give HUD a shout with questions.

The industry continues to incorporate Ginnie’s seasoning requirements.


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