How The Immigration Debate Is Impacting Your Credit Union

I’m seeing signs that the legal rights of DACA aliens seeking loans is bubbling to the forefront. It’s time for your credit union to grapple with this complicated and emotional issue if you haven’t done so already.

The first thing you’ll have to do is wade into the increasingly byzantine history of this program. In 2012, the Obama Administration, frustrated by its inability to reach an agreement on immigration reform with Congress, created the Deferred Action for Childhood Arrivals Program. Under the program, persons born outside of the United States and who entered the country illegally before the age of 16 were entitled to deferred action against prosecution for their status as illegal aliens. These Dreamers  were also given the right to obtain documentation which enabled them to legally work and obtain banking services. In 2017, the Trump Administration closed the program to new applicants. However lawsuits are pending, and the government is still required to accept new applicants for DACA status.

Regardless of what your personal view is of the program, if you’re in charge of overseeing lending criteria at your credit union, you should be aware of the unique issues raised by this program and the uncertain legal status of individuals who qualify for it. For example, in this blog I highlighted a lawsuit brought against Wells Fargo after it refused to give a student loan to a Dreamer. As I pointed out at the time, the ECOA makes it illegal to discriminate against someone based on their nationality but you can take someone’s immigration status into account when deciding whether or not to give them a loan.

The issue is once again coming to the forefront. Fannie Mae recently issued this guidance clarifying what documentation could be used for qualifying non US citizens for mortgage loans. It also used the guidance to reiterate that so long as a loan meets its purchase criteria at the time it is made, a subsequent change in the law or an individual’s immigration status will not trigger a repurchase demand. This is good news but it has the feel of one of those announcements by a team owner publicly declaring his support of the manager. If the manager’s job was really safe he wouldn’t feel the need to make the comment in the first place.

In contrast to the GSE, in a December 2018 update to its underwriting standards for providing mortgage insurance, Genworth explained that it would not provide mortgage insurance for homes purchased by Dreamers. In its notice it explained that, “the Deferred Action for Childhood Arrival (DACA), allows certain undocumented immigrants who entered the country as minors to receive a renewable two-year period of deferred action from deportation and eligibility for a work permit. The DACA Program does not provide proof of legal residency, therefore, DACA applicants are not eligible for Genworth Mortgage Insurance.”

All of this puts lenders in a damned if you do, damned if you don’t situation. This is especially true since many of the same issues related to mortgage loans exist for other types of loans. The bottom line is the worst thing you can do is ignore the issue completely and hope it goes away. I don’t know if you’ve noticed but the country is awfully divided and with an incredibly important Presidential election now less than two years away, neither party is going to be in a position to deal with the DACA issue once and for all.