A push in Washington to require banks to collect citizenship or legal status data from customers is gaining momentum, with both legislation and potential executive action on the table.
Scott Bessent, head of the U.S. Department of the Treasury, said last week that the administration expects banks to comply if regulators determine citizenship data collection is required, adding, “If Treasury and the banking regulators say it’s their job, it’s their job.” He also said an executive order requiring banks to collect citizenship data is “in process,” signaling potential near-term regulatory action.
At the same time, Tom Cotton, a Republican lawmaker serving in the United States Senate, has introduced the Know Your American Customer Act, which would require banks and credit unions to verify that new account holders are U.S. citizens, permanent residents, or otherwise legally present in the country.
The bill has been introduced but not passed, and no executive order has been issued to date.
What’s Confirmed — And What Isn’t
Under the current “Know Your Customer” (KYC) rules, banks are required to verify identity, but are not required to confirm citizenship or immigration status.
If enacted, either through legislation or executive action, the proposal would represent a significant expansion of those requirements at the banking level. Administration officials say the effort is aimed at protecting the banking system and ensuring services remain accessible and affordable.
At this stage:
- There is no change to mortgage underwriting rules
- No requirement applies to lenders or loan files
- No implementation timeline has been established
Officials have not provided details on what specific citizenship information banks would be required to collect. Banks have pushed back on the idea, citing operational complexity and compliance costs tied to collecting and verifying additional customer data.
Where Mortgage Could Be Affected
While the policy discussion is focused on banking access, mortgage professionals say changes to account opening and verification could have downstream effects on how borrowers enter the lending process.
If banks are required to collect and verify legal status, potential impacts could include:
- additional documentation at account opening
- longer onboarding timelines
- increased scrutiny of identification and financial records
Because mortgage lending relies heavily on verified bank accounts for assets and reserves, any changes to account access or documentation could indirectly affect borrower readiness and timing, particularly in purchase transactions.
Non-QM And Nontraditional Borrowers In Focus
Industry participants say any disruption, if it materializes, could be more noticeable among borrowers who already rely on alternative qualification methods.
That includes:
- foreign-national borrowers
- ITIN borrowers
- asset-based and DSCR borrowers
The proposed policy does not specifically target these segments or mortgage lending. However, lenders note that stricter banking verification requirements could add complexity to documenting assets or maintaining accounts used in underwriting.
Legislation And Regulation Moving On Parallel Tracks
The combination of a proposed bill and potential executive action has drawn attention from financial institutions, particularly because the two paths operate on very different timelines.
Legislation can take months or longer to advance, while regulatory action, if pursued, could move more quickly and reshape compliance expectations at the bank level.
For mortgage professionals, that distinction matters: changes affecting borrower access to accounts or documentation could surface before any formal legislative outcome.
What This Means For LOs
For now, there’s no immediate change to loan guidelines. But if banking requirements tighten, the impact for originators is likely to show up before the application even begins.
Lenders say to watch for:
- Longer borrower readiness timelines as account setup or verification takes more time
- Heavier upfront documentation, particularly around assets and account history
- Increased complexity with Non-QM borrowers, including foreign-national and ITIN clients
That may mean spending more time vetting borrowers earlier in the process, before issuing a preapproval, to avoid delays later in the pipeline.
In practice, this is less about underwriting changes — and more about how quickly a borrower can get to “ready to apply.”
Efforts to require banks to collect citizenship or legal status data remain focused on the banking system, not mortgage lending.
But because mortgage qualification depends on verified financial accounts, any change to how those accounts are opened and maintained could carry downstream implications.
