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DACA Borrowers: FHA Eligible Again?

The debate about DACA borrower eligibility for FHA loans heated up this week following reports that FHA is not, as previously reported, denying mortgages to DACA recipients. In a recent letter from HUD to Senator Robert Menendez, HUD asserts that it has made no policy changes with respect to DACA recipients. HUD's letter was in response to concerns raised by Senators Menendez, Booker, and others, following a number of news stories that suggested HUD had made a change in policy, barring DACA recipients from getting FHA loans.

FHA’s letter restates the position FHA has taken over the last year: longstanding FHA policy prohibits financing to individuals without legal residency status, and therefore there has been no policy change.

The question FHA did not answer: are DACA recipients eligible borrowers? That is, do they have lawful residence in the United States? While the underlying policy may not have changed, FHA’s answer evidently has.

In the early years of the DACA program, FHA’s enforcement stance was that it was up to the lender to determine whether DACA represents a legal residency status. However, early last summer, they appear to have made an internal determination, based on language from USCIS, that DACA does not provide legal residency.

Important to note: the USCIS language does lend itself to other interpretations. While USCIS consistently notes that DACA is not a legal residency status, and does not provide a path to such status, they also state that DACA recipients are “legally present.”

"Deferred action under DACA does not confer legal status upon an individual and may be terminated at any time, with or without a Notice of Intent to Terminate." (February 2018)

"[...A]lthough deferred action does not confer a lawful immigration status...you are considered to be lawfully present in the United States during that time." (June 2016)

Is legally present the same as lawfully resident? FHA evidently thinks not, and on that basis began advising lenders that DACA recipients are ineligible, and enforcing that interpretation in loan reviews, requesting indemnification on loans where the borrower's EAD card shows "C33" (indicating a DACA recipient).

Lenders who make FHA loans to DACA borrowers should be prepared to make a strong legal case that FHA’s interpretation is wrong and that DACA does provide lawful residence.

Editor's note: The Collingwood Group is a client of the Five Star Institute, the parent company of DS News.

About Author: Tim Rood

Tim Rood is the Chairman of The Collingwood Group, which he co-founded in 2009. Rood was co-founder and managing director of the firm’s predecessor company, Capital Financial Solutions. The Collingwood Group’s primary focus is in the financial services sector, and the firm offers advisory and consultative services combined with access to decision makers, financial sponsors, corporate boards, and senior industry executives. Rood has over two decades of mortgage industry and entrepreneurial experience. He advises organizations to optimize the business opportunities and to mitigate and manage the risks in and around Washington, DC. Rood is a sought after and regular contributor to various national media outlets including CNBC, Bloomberg Television, FOX Business News, Washington Post, New York Times, Wall Street Journal, and the American Banker.

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