A sweeping change took place this morning that blocks non-permanent residents from taking out FHA loans.
After conforming loans backed by Fannie Mae and Freddie Mac, they are the most popular loan type available to home buyers today.
They also have the most liberal underwriting guidelines, which allow for credit scores as low as 580 with a 3.5% down payment.
As a result of this change, only permanent residents will be able to obtain an FHA loan moving forward.
The policy change is intended to both prioritize legal U.S. residents while also protecting “the integrity of government-insured loan programs.”
Illegal Aliens Barred from Taking Out FHA Loans
A new mortgagee letter released today updates “will remove eligibility for illegal aliens from accessing FHA-insured mortgages.”
It does so by completely removing the “Non-permanent Residents” category in both the Single Family Title I and Title II programs.
The FHA Title II loan programs include the basic FHA loan, known as 203(b), the home renovation 203(k) loan, and reverse mortgage program known as an HECM.
The FHA Title I program includes property improvement loans and the manufactured housing (mobile) home program.
As always, mortgage lenders must determine the residency status of borrowers based on information provided on the mortgage application along with other supporting documentation.
The letter notes that “a Social Security card is not sufficient to prove immigration or work status.”
But only “Permanent Residents” are eligible for FHA-insured financing, meaning they must have lawful permanent resident status.
It adds that the U.S. Citizenship and Immigration Services (USCIS), a division of the Department of Homeland Security, provides evidence of lawful permanent resident status.
Policy Change Aligns with Recent Executive Orders
As for why the change is being made, the letter notes that it aligns the FHA’s requirements with recent executive actions carried out by President Trump.
It prioritizes the use of federal resources for legal U.S. residents while also protecting both the financial interests of American citizens and the FHA.
In addition, it ensures the integrity of government-insured loan programs is maintained.
One issue specifically mentioned in the letter is the notion that a non-permanent resident could be “subject to immigration laws that can affect their ability to remain legally in the country.”
In other words, a non-permanent resident borrower who gets approved for an FHA loan could theoretically be deported at which point the loan would likely fall into arrears.
The loan would go into default and the property would fall into foreclosure, which would hurt the FHA’s Mutual Mortgage Insurance fund (MMI).
This could jeopardize their ability to insure lenders against losses and possibly lead to the MMI fund needing taxpayer funds.
Of course, the FHA has only ever received one bailout in its near-100 year history, and it wasn’t a large one.
How Many Illegal Immigrants Actually Have FHA Loans?
There’s also the question of how many illegal immigrants actually have FHA loans.
In the letter, the FHA said it doesn’t retain citizenship or residency data from the loan application.
As such, it doesn’t know the number of non-permanent residents who received FHA “loans under past policies.”
My guess would be not many because it’s not easy to get approved for a mortgage these days unless you have a solid employment history, robust credit history, and steady income.
Someone who isn’t lawfully in the United States likely doesn’t fit that description, though it’s possible to get the odd borrower through underwriting I suppose.
But again, this would likely be the exception, not the rule.
However, I’m aware that the FHA allowed non-permanent resident aliens to get approved for loans in the past. So this will no longer be the case.
This also pertains to streamline refinances, meaning existing FHA borrowers won’t be able to refinance their mortgages either.
The bigger takeaway here is that the new administration clearly doesn’t want any government assistance, which is essentially what an FHA loan is, going to non-Americans.
And this could just be the tip of the iceberg.
Last week, the USDA Rural Development office sent a bulletin stating that non-U.S. citizens are no longer eligible for USDA loans.
That notice terminated a temporary authority originally communicated on April 29th, 2022.
The other major type of government home loan, the VA loan, is reserved for military members and requires lawful permanent residence to serve. So that too is covered.
