United States: HUD Expands Eligibility For FHA Loans To DACA Recipients And Extends Foreclosure And Eviction Moratorium

Last week, the US Department of Housing and Development ("HUD" or "Department") made two significant announcements impacting mortgage loans insured by the Federal Housing Administration ("FHA"). First, the FHA announced that, effective January 19, 2021, individuals residing in the United States under the Deferred Action for Childhood Arrivals ("DACA") program who are legally permitted to work in the United States are eligible to apply for FHA-insured mortgages.¹ Second, on January 21, 2020, HUD announced the extension of the foreclosure and eviction moratorium for borrowers with FHA-insured single family mortgages to provide meaningful support to individuals and families struggling to make mortgage payments due to the COVID-19 national emergency.² We summarize both developments below.

DACA Recipients Eligible for FHA-Insured Mortgages

On January 20, 2021, the FHA announced that it had issued a waiver in full, dated January 19, 2021, of Single Family Housing Policy Handbook 4000.1 Section II.A.1.b.ii.(A)(9)(c).³ That provision states: "Non-US citizens without lawful residency in the United States are not eligible for FHA-insured mortgages." The waiver also states that the language from that section will be removed from the Handbook in a subsequent update to the Handbook.

This language had previously been cited as preventing DACA recipients from being eligible to obtain FHA-insured mortgages. DACA is a program implemented by US Citizenship and Immigration Services ("USCIS") that permits individuals who entered the United States unlawfully as children to apply for and receive a two-year deferment from deportation and become eligible for a US work permit. Specifically, in June of 2019, in response to a congressional inquiry, HUD publicly affirmed its position that DACA recipients were ineligible for FHA loans, as DACA does not confer lawful status, and the above-referenced Handbook provision stated that individuals without lawful residency were not eligible for FHA-insured loans.⁴ Even before HUD's June 2019 letter, the Handbook provision long created ambiguity over whether DACA recipients had "lawful residency" for the purposes of obtaining an FHA-insured mortgage. As noted in the January 19 waiver, "[t]he term 'lawful residency' was initially inserted into the FHA guidelines in 2003 and pre-dates the 2012 DACA Executive Order and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present."⁵ The Department's waiver effectively reverses HUD's prior policy on the eligibility of DACA recipients for FHA-insured loans and, according to the waiver, was done "to avoid confusion and provide needed clarity to HUD's lending partners."⁶

In its announcement of the waiver, the FHA reiterated that all other requirements remain in effect for potential borrowers, including potential borrowers with DACA status. These requirements include that:

• the property will be the borrower's principal residence;
• the borrower has a valid Social Security Number, except for borrowers employed by the World Bank, a foreign embassy or equivalent employer identified by HUD;
• the borrower is eligible to work in the United States, evidenced by the Employment Authorization Document issued by USCIS; and
• the borrower satisfies the same requirements, terms and conditions as those for US citizens.⁷

If a DACA recipient's Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the Department clarified that a lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal based on information from USCIS. In the announcement of the waiver, HUD also noted that a borrower residing in the United States by virtue of refugee or asylee status granted by USCIS is automatically eligible to work in the United States, and FHA lenders will need to obtain documentation substantiating the refugee or asylee status, rather than the Employment Authorization Document.⁸

The HUD waiver should be a welcome development for FHA lenders, who have long requested clarity on this issue. It also aligns with Fannie Mae's position on lending to non-permanent residents, which was clarified in 2019.⁹ The FHA is expected to release additional guidance on this announcement in the future to clarify questions that lenders may have when implementing the change created by the waiver.

Extension of Foreclosure and Eviction Moratorium in Connection with the Presidentially Declared COVID-19 National Emergency

On January 21, 2020, at the request of newly inaugurated President Biden, HUD extended its foreclosure and eviction moratorium for FHA-insured single family mortgages. Pursuant to Mortgagee Letter 2021-03, the moratorium is now extended through March 31, 2021.¹⁰ As with previously announced moratoria related to the COVID-19 national emergency, the moratorium extension announced last week continues to prohibit servicers from initiating or proceeding with foreclosure and eviction actions on properties securing single family mortgages, including Home Equity Conversion Mortgage ("HECM") loans, insured by the FHA or guaranteed by the Office of Native American Programs' Section 184 and 184A loan guarantee programs. The moratorium does not apply to mortgages secured by vacant and abandoned properties. This is the sixth Mortgagee Letter HUD has published to announce and extend foreclosure and eviction moratoriums tied to the COVID-19 national emergency. As in the past announcements, Mortgagee Letter 2021-03 also extends the deadline for the first legal action and reasonable diligence foreclosure timelines by 120 days from the date of expiration of the moratorium for all FHA-insured single family mortgages, except those secured by vacant or abandoned properties.

In HUD's press release announcing this most recent extension, acting Federal Housing Commissioner Janet Golrick indicated that, in addition to the moratorium extension, the Biden administration has plans to address "larger, systemic housing challenges that must be overcome" in the future.

As the Biden administration representatives begin their tenure at HUD, and as the COVID-19 national emergency continues to disrupt the residential mortgage market, we can expect the Department to announce additional updates to the programs and guidance discussed above, as well new requirements designed to address the unique circumstances presented by the pandemic.

Footnotes

1. FHA, FHA Info #21-04, FHA to Permit DACA Status Recipients to Apply for FHA Insured Mortgages (Jan. 20, 2021), https://www.hud.gov/sites/dfiles/SFH/documents/SFH_FHA_INFO_21-04.pdf.

2. HUD, Press Release 20-008, Biden Administration Authorizes Extension of Federal Housing Administration Single Family Foreclosure and Eviction Moratorium (Jan. 21, 2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_008.

3. HUD, Request for Waiver of Single Family Housing Directive (Jan. 19, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/HousingWaiver4000.1.pdf?utm_medium=email&utm_source=govdelivery.

4. Letter from Len Wolfson, HUD, to Rep. Pete Aguilar (June 11, 2019), https://www.consumerfinancemonitor.com/wp-content/uploads/sites/14/2019/06/HUD-Response-on-DACA.pdf.

5. HUD, Request for Waiver of Single Family Housing Directive (Jan. 19, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/HousingWaiver4000.1.pdf?utm_medium=email&utm_source=govdelivery.

6. Id.

7. FHA, FHA Info #21-04, FHA to Permit DACA Status Recipients to Apply for FHA Insured Mortgages (Jan. 20, 2021), https://www.hud.gov/sites/dfiles/SFH/documents/SFH_FHA_INFO_21-04.pdf.

8. Id.

9. https://singlefamily.fanniemae.com/media/7181/display.

10. HUD, Mortgagee Letter 2021-03 (Jan. 21, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-03hsgml.pdf.

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