Residency Requirements on FHA Loans

Last week my colleague completed a rundown of some of policy changes occurring in the housing space, including Mortgagee Letter 2025-09. In this blog, I’m going to take a closer look at that letter and what it means for in the context of existing guidance.

Mortgagee Letter 2025-09 was issued by the U.S. Department of Housing and Urban Development (HUD) on March 26, 2025 and updates Borrower residency requirements for certain FHA-backed mortgages. Starting on May 25, 2025, (and implementable prior) only U.S. citizens and lawful  
Permanent Residents (often known as “green-card holders”) are eligible for FHA Title II Single Family Forward and Home Equity Conversion Mortgage (HECM) programs. The letter rescinds the eligibility for non-Permanent Resident Borrowers to make use of those programs and updates the requirements for permanent residents in the following sections:  

  • Residency Requirements (II.A.1.b.ii(A)(9));  
  • Residency Requirements (II.B.2.b.ii(A)(4));  
  • Non-credit Qualifying Exemptions (II.A.8.d.vi(C)(1)(a)); and  
  • Special Documentation and Procedures for Non-credit Qualifying Streamline Refinances (II.A.8.d.vi(C)(5)(b)).

This impacts only new loans, and not existing mortgages. At this time, mortgages backed by Fannie Mae, Freddie Mac, and the VA have not been affected. There is also a very small carve-out for citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. Citizens from those countries will still remain eligible for FHA mortgages after the implementation date.  

The policy changes will be incorporated into Handbook 4000.1 as follows:  

“Title II Insured Housing Programs Forward Mortgages – General Borrower Eligibility Requirements (II.A.1.b.ii(A)) 

(9) Residency Requirements:  

The Mortgagee must determine the residency status of the Borrower based on information provided on the mortgage application and other applicable documentation. A Social Security card is not sufficient to prove immigration or work status.”

But wait! Didn’t the CFPB and DOJ say lenders could not take immigration status into account when determining loan eligibility?

If this sounds familiar, you’re probably remembering the Joint Statement published by the agencies on October 12, 2023, reminding lenders that the Equal Credit Opportunity Act protects all credit applicants from discrimination based on their national origin, race, and other characteristics. The CFPB had received complaints that otherwise well-qualified borrowers with strong ties to the United States were being turned down for all kinds of loans. However, the guidance notes, “While the Equal Credit Opportunity Act allows a creditor to consider an applicant’s immigration status when necessary to ascertain the creditor’s rights regarding repayment, creditors should be aware that unnecessary or overbroad reliance on immigration status, including when that reliance is based on bias, may run afoul of the law.”

This is a situation that would necessitate review of the Borrower’s immigration status and their eligibility regarding FHA programs.

With these changes in the FHA programs, will the CFPB take steps to enforce “unnecessary or overbroad reliance” on a Borrower’s immigration status? That remains to be seen but the CFPB has been taking steps to distance itself from policies put in place by the last administration. These steps include, among other things, rolling back proposed rules, as well as declining to defend rules challenged in federal court.  

Questions? Suggestions for future blog posts? Please reach out to the Compliance Team at compliance@americascreditunions.org.