HUD issues mortgage underwriting rules favoring temporary foreign workers

U.S. Citizens, permanent residents require two years of employment, while H1-B visa holders now need just one year for FHA loan approvals.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | June 05, 2021

At the quiet dawn ahead of the Memorial Day weekend, the U.S. Department of Housing and Urban Development told America’s FHA mortgage lenders to lower the underwriting bar for H-1B visa holders.

To qualify for a Federal Housing Administration loan, these temporary foreign workers in specialized occupations need to show a minimum of just one year of U.S. employment history.

But if you are a U.S. citizen or a U.S. permanent resident (green card holder), the two-year minimum still applies.

I would think the daunting battle for homeownership would put citizens and legal residents front, center and certainly first-in-line. This new policy doesn’t. This potentially puts citizens and permanent residents at the back of the bus.

It offers a distinct advantage for foreign workers to get a leg up on U.S. citizens and permanent U.S. residents with short or spotty job histories. And, it will create more home purchase competition.

As of Sept. 30, 2019, the latest available data, the number authorized to work under an H-1B visa was 583,420 people, according to the U.S. Department of Homeland Security.

Why is HUD offering an easier pathway to homeownership to H1-B visa holders at the expense of permanent residents?

A HUD spokesman said the action is consistent with the Biden administration’s and HUD’s “strategy to expand access to affordable mortgage credit to all low-to-moderate income individuals and families, particularly those in underserved communities.”

It rings hollow to say H-1B visa holders are underserved. In my decades of originating mortgages, never once have I taken a loan application from an H-1B visa holder who was not a highly compensated, high-level worker such as an engineer or software developer.

FHA financing is still a big deal for getting folks on the road to homeownership. The nation’s lenders issued an average of 1.1 million FHA mortgages a year over the past five years, with 125,000 California borrowers a year getting FHA financing, according to Attom Data Solutions.

FHA financing was used in nearly 10% of all Los Angeles County purchases, 5.7% in Orange County, over 20% in Riverside County and nearly 21.5% in San Bernardino County.

“This makes no sense,” said Dave Stevens, FHA Commissioner under President Obama. “If I were commissioner, I’d modify the policy to be consistent or better” for citizens and green card holders.

Stevens also wondered if HUD did a default risk analysis.

“There is a risk in taxpayers supporting mortgage programs for workers who can theoretically lose their jobs and get kicked out of the country,” said Stevens.

A senior industry executive told me on condition of anonymity HUD is in turmoil since many vacancies left by departing Trump administration officials have yet to filled.

“Social just warriors have taken over and are trying to make up for lost time,” he said.

Another view comes from outside the industry.

“Is there a rational distinction between the groups? Is there a labor shortage? It’s not unfair or discriminatory if there was a rational, legitimate public purpose,” said Michael Josephson, founder, CEO and president of the Josephson Institute of Ethics. “They need to be transparent about it though. Anything government does should be subject to public accountability.”

I wonder if this is just a public policy mistake that will get walked back quickly. Or is this the beginning of a slippery housing policy slope for which more uneven policies become the rule of law?

Freddie Mac rate news: The 30-year fixed rate averaged 2.99%, 4 basis points higher than last week. The 15-year fixed rate averaged 2.27%, unchanged from last week.

The Mortgage Bankers Association reported a 4% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $57 more than this week’s payment of $2,308.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.625%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.875% and a 30-year fixed jumbo at 2.875%.

Eye catcher loan of the week: A 20-year fixed at 2.75% without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.