MN1 HELP PLEASE

[estrella504]

my case is the below,

My husband is an EEA national of the A8 countries, he has been working in the UK since 2010.
His first employment was in May of 2010 he did work for a job agency for three months with the WRS card, he left that job voluntarily and was job seeker for two weeks. In September 2010 he did star his actual job, but he didn't registered this job with the WRS because his employee told him it wasn't necessary as he is an EEA, his employee only made a copy of his passport.
In 2012 was granted with an registration certificate, that we used to applied for my family permit visa as I'm an Non-EEA, 6 months lather I did applied for a resident card with my husband as my sponsor, I was granted with the resident card for 5 years.
In January of this year(2015) we had our first baby, and we've applied for his first passport, and it wasn't granted because our baby was born before my husband complete the 5 year in the UK, also they stated that we should try register him as citizen, and if the citizenship is granted he will be able to get a passport.
In June of this year he did applied for a permanent residence card and it came back refused (under regulation 15 (1)(a) of the immigration (EEA) Regulations 2006), with rights to an appeal. the reasons of refusal is because he's first year of employment was not registered under the WRS,as he didn’t completed 12 months of employment in his first job. He doesn't want to appeal because he haven't more evidence, he did put all papers covering 5 years of employments in the UK as his supporting documents for the EEA4 application, including bank statements, tenancy agreements, council tax bills, gas/electricity bills, HRM letters, PG/NHS letters and English course certificates.
The Home Office is offering him to submit a fresh application for a registration certificate which is confirmation of his right to stay and work in the UK and is valid for 5 years. As an EEA national he is no required to leave UK. why are they offering this?
We don't know what to do after my husband's EEA4 was refused, is there any possibility that my baby could be granted with a citizenship?
thank you very much in advance

[Obie]

if your husband was not residing in the UK in accordance with the regulations for a period of 5 years, then your child is not entitled to register as a British.