I read that in the same book. The Bonannos were in very bad shape at that time, and didn't have a seat on the Commission. They may have decided that it'd be better for them to have an American-born boss, one known by Commission members, if they wanted to get the seat back.

I don't know that it's a Mafia-wide "rule." Presumably any family can do anything they want, as long as it's not directly disadvantaging other families. On the other hand, considering all the guys who are ambitious to be the Don and are willing to kill to get the Donship, it does seem unlikely that a family would choose someone who was born overseas, unless he'd been in the family for decades. Catalano wasn't.