DHS Secretary: ‘The Gravy Train Is Over’ on Mortgages for Illegal Aliens

The Department of Housing and Urban Development (HUD) sent a letter last week to the U.S. real estate and mortgage industry, “updating its residency requirements for Borrower eligibility for [Federal Housing Authority or “FHA”] insured loans”. A National Review headline, which the department itself quoted, aptly summarizes the update: “HUD Cracks Down on Government-Backed Mortgages for Illegal Immigrants”. It’s high time, and now HUD is partnering with DHS to make it stick.

FHA’s Role in the Mortgage Industry

When most think of the “American dream”, it usually involves a spouse, a car or two, a dog and/or cat, 2.5 kids, wi-fi, and what the late comedian George Carlin referred to as “a place for my stuff”, that is, a home.

Homes, however, can be expensive, and for many Americans on the lower end of the economic ladder, prohibitively so.

That’s where FHA and its assistance programs come in. As Investopedia explains, an FHA loan:

is a home mortgage that is insured by the government and issued by a bank or other lender approved by the agency. FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than the best mortgage lenders usually require. FHA loans are designed to help low- to moderate-income families attain homeownership, and they are particularly popular with first-time homebuyers.

Put simply, private lenders loan the money for that dream home, and the FHA backs it up in case of default.

Biden Offers FHA Loans to DACA Recipients on Day One

On the day he took office, President Biden directed the FHA to allow alien beneficiaries of the Obama-era Deferred Action for Childhood Arrivals (DACA) program with work authorization to seek FHA-backed mortgages.

That was an economically questionable move, given the fact that, as my colleague Elizabeth Jacobs has repeatedly noted, the legally questionable DACA program has been subject to litigation in the courts for years, and had been repeatedly challenged even before FHA made its recipients eligible for federally backed loans.

The Biden policy was likely intended to give American taxpayers some skin in the DACA game, because if its estimated half-million plus beneficiaries — at least some of whom could now obtain FHA-insured mortgages — were forced to leave, the Treasury would be left holding the bag.

According to a January 20, 2021, FHA press release announcing the change in policy:

Prior to today’s announcement, the FHA Single Family Housing Handbook … includes this statement: “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.” This language was incorporated into the FHA Handbook by the Obama Administration in September 2015 although it was first incorporated into FHA guidelines in 2003.

The term “lawful residency” pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present. To avoid confusion and provide needed clarity to HUD’s lending partners, FHA is waiving the above referenced FHA Handbook subsection in its entirety. In a subsequent update to the FHA Handbook the language will be removed. [Emphasis and underlining in the original].

My sympathies to loan officers who not only had to apply this mess, but also other guidance therein stating that if a DACA recipient’s “Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted”.

I’ve been practicing immigration law for more than three decades and I’m not sure I could sort through that “prior history of residency status renewals” requirement.

In any event, as a consequence of that change, other employment-authorized aliens without status, including those with pending asylum applications (and likely parolees, as well) have been able to seek FHA-backed mortgages. That’s despite the fact that their continued presence in this country is tenuous, at best.

Under Biden, a Confusing, but Ominous, Warning to Creditors

As an aside, this was not the only attempt by the prior administration to open the U.S. loan industry to aliens without lawful status in the United States.

In October 2023, I reported that Biden’s Consumer Financial Protection Bureau (CFPB), an independent executive branch agency, and Department of Justice (DOJ) had just issued a statement notifying creditors they “should be aware that unnecessary or overbroad reliance on immigration status in the credit decisioning process, including when that reliance is based on bias, may run afoul of [Equal Credit Opportunity Act] antidiscrimination provisions, and could also violate other laws”.

That’s the kind of fuzziness CFPB is legendary for, but one would expect DOJ to at least let creditors know whether they had to issue loans to illegal aliens. Instead, that CFPB/DOJ statement left the entire question vague, and likely deliberately so.

Banks don’t want to be known for violating civil rights laws like the Equal Credit Opportunity Act, and so the loans likely flowed to the unauthorized population.

“Revisions to Residency Requirements”

HUD is now attempting to reverse the Biden FHA guidance, issuing that March 26 letter to the lending industry, which is simply captioned “Revisions to Residency Requirements”.

It aligns the agency’s loan programs with President Trump’s immigration priorities by making clear that aliens without permanent resident status (i.e., green cards) will no longer be eligible for FHA-insured mortgages.

Those new requirements are set to take effect on May 25, and will apply not only to DACA recipients but also to aliens with pending asylum applications, “since there is no guarantee that their residency status will be renewed under the current administration”. That’s an understatement.

As HUD Secretary Scott Turner told NR:

There will be no more illegal aliens getting HUD-backed home loans. … The Biden administration exploited taxpayer resources and manipulated FHA policy to allow illegal aliens to ride the coattails of the American taxpayer when financing on a home. For those who play by the rules and work hard to purchase a home, it is unconscionable. HUD will continue to implement President Trump’s executive order ending taxpayer subsidization of open borders and protecting the American Dream of homeownership.

HUD Partnering with DHS

In yet another sign of this tectonic shift in HUD policy, Turner and DHS Secretary Kristi Noem signed a memorandum of understanding (MOU) captioned “American Housing Programs for American Citizens”.

As a HUD press release explains, under that agreement the department will send a full-time staff member to the DHS Incident Command Center (ICC), “to facilitate data sharing and ensure taxpayer-funded housing programs are not used to harbor or benefit illegal aliens”.

Consistent with other warnings she has issued of late, Noem highlighted the ultimate implications of this new HUD/DHS partnership:

The entire government will work together to identify abuse and exploitation of public benefits and make sure those in this country illegally are not receiving federal benefits or other financial incentives to stay illegally. If you are an illegal immigrant, you should leave now. The gravy train is over.

I should note that HUD cites September congressional testimony by my colleague Steven Camarota in which he estimated that “59 percent of households headed by illegal immigrants use one or more welfare programs, creating roughly $42 billion in costs”. When Camarota talks, apparently HUD listens.

When Trump promised to bring all the authorities at his disposal to bear in addressing the unauthorized population in the United States, he meant it. Refusing to federally insure mortgages for aliens without lawful status is low-hanging fruit, but it definitely sends a message: “The gravy train is over.”