Why this article matters: Efforts to withhold the American Dream from newcomers to this country are hitting a new peak, with federal guidance now encouraging MLOs to discriminate based on immigration status. How does that impact MLO practice in California?
Misguided guidance for biased disapprovals
Mortgage loan originators (MLOs) are now encouraged to consider a mortgage applicant’s immigration status when determining their ability to repay (ATR), according to newly released guidance published in the Federal Register. This is to keep up with the administration’s Executive Order 14406, entitled Restoring Integrity to America’s Financial System.
The longstanding ATR rules require residential mortgage lenders to make a “reasonable and good faith effort to verify that the applicant is able to repay the loan.” [12 Code of Federal Regulations §§1026.43 et seq.]
Today’s new guidance stresses that in many cases, MLOs are obligated to weigh immigration status when making lending decisions.
For example, the guidance notes the MLO is to be wary when an applicant has an individual taxpayer identification number (ITIN). This 9-digit, tax processing number issued by the Internal Revenue Service (IRS) to individuals who don’t have a social security number can be an indication of an individual with an immigration status.
Immigration status can mean many things, including a person who:
- is undocumented (in the U.S. with no documentation and therefore most vulnerable to deportation);
- has temporary authorization (lacking a path to permanent citizenship, but residing in the U.S. with temporary permission from the U.S. government, such as a DACA recipient or an individual whose country of origin is deemed unsafe by the U.S. government);
- holds a nonimmigrant visa (lacking a path to permanent citizenship, but residing in the U.S. temporarily with permission due to work, study or tourist reasons);
- is a lawful permanent resident (also known as holding a green card, these residents may have a path to citizenship through a multi-year naturalization process, but are still vulnerable to deportation); and
- is a naturalized citizen (having been granted full U.S. citizenship and may only be deported by the U.S. government first revoking their citizenship).
Therefore, under this new guidance, MLOs may very well discriminate against anyone who was not born in the U.S.
Further, when an MLO is unsure about an individual’s immigration status, the guidance stresses the MLO may now make a direct inquiry about their protected status to the applicant.
Discarding decades of anti-discrimination law, this new guidance offers MLOs carte blanche to discriminate against mortgage applicants based on anything, from how they look, speak or even what their name sounds like.
This new guidance is effectively giving the thumbs up to redlining, a practice we all thought was relegated to the history books.
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When state and federal law conflict
Here in California, the Unruh Civil Rights Act protects homebuyers and borrowers against discrimination based on an individual’s:
- sex;
- race;
- color;
- religion;
- ancestry;
- national origin;
- disability;
- medical condition;
- genetic information;
- marital status;
- sexual orientation;
- citizenship;
- primary language; or
- immigration status. [Calif. Civil Code §51(b)]
This is not the first time federal and state laws have been at odds with one another.
For example, federal and state fair housing laws prohibiting discrimination exist. Both the state and federal governments can regulate fair housing. The state may provide more, but may not allow less, protection than the federal law. [CC §51]
Notably, MLOs may require verification of immigration status and base their lending decisions upon verified immigration status, when required by federal law. [CC §51(g)]
To that end, at the time of this writing, the federal ATR and immigration rules remain guidance only — not legal requirements.
Still, as the federal enforcer of anti-discrimination laws in lending, the Consumer Financial Protection Bureau’s (CFPB’s) new guidance effectively has the force of law — for those who live in a state with fewer protections than we do in California.
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The effects
Here in California, 23% of the undocumented immigrant population — or 667,000 residents — are homeowners, according to the Migration Policy Institute.
Many more live in mixed-status households, wherein an undocumented immigrant contributes as a job holder earning pay to make mortgage payments.
This equates to 10% or more of owned homes in the state relying on an income from an individual who is undocumented.
Clearly, a huge source of turnover and a vital component of our state’s housing market, individuals with immigration statuses are now quickly seeing their ability to obtain a mortgage — and the financial benefits of homeownership — derailed by federally approved bias.
However, California MLOs considering this new guidance will recall: individuals are protected against discrimination by various civil rights laws put in place at the federal and state level. To remain in good faith with fair housing laws, the MLO ought to take the course of action that provides the strongest protections to members of protected classes — including those with immigration statuses.
