Banks Find Mortgage Clientele in Undocumented Immigrants

This article was originally published by Newhouse News Service on Monday, March 14, 2005.

By Katherine Reynolds Lewis
c.2005 Newhouse News Service

Dalila and William Timal look like any other couple signing a home mortgage. They've picked out paint colors for their new four-bedroom house in Indianapolis and can't wait for their 18-month-old son to play in the yard.

But they differ in one way from many others you'd see at a loan officer's desk: Neither is a U.S. citizen or legal resident. The Timals came to this country from Guatemala in the late '90s and illegally overstayed their visas.

They're the beneficiaries of a new program by Cincinnati-based Fifth Third Bank, basing mortgages on an individual taxpayer identification number, or ITIN.

Nationwide, increasing numbers of financial institutions offer such loans. They view customers like the Timals as part of their communities, not to mention a critical business opportunity. Just among the nation's roughly 6 million undocumented Latinos is a potential $44 billion market for homes, according to the National Association of Hispanic Real Estate Professionals.

"People need somewhere to live," said Ann Baddour, senior policy analyst with Texas Appleseed in Austin, a nonprofit group that uses volunteer professionals to solve social problems. "It's not new that people are buying homes; what's new is that banks are financing it."


The Timals saved up a $3,000 down payment for their loan. "We've been working so hard to have the money ready," Dalila Timal said in an interview.

"It's a house with a lot of space for us, it's a quiet area, it's near to the schools. I think it's a good neighborhood," she said. "It's good because it's going to be ours."

A person requests an ITIN from the Internal Revenue Service if he or she isn't eligible for a Social Security number, but must file a tax return. And while groups opposed to illegal immigration have pressured the IRS to work with immigration officials, experts say U.S. Immigration and Customs Enforcement concentrates on deporting violent criminals and people suspected of terrorist connections.

The growth of ITIN mortgage programs is an example of how day-to-day life in America has adapted to the reality of as many as 10 million undocumented immigrants. The IRS accepts their tax payments, employers recruit them, and companies seek them out as customers.

Yet they have no legal right to work or remain in the United States, and are denied full benefits afforded to citizens. To buy homes, many have used a borrowed or false Social Security number, jeopardizing their legal right to the property. Without access to the traditional banking system, they have been easy targets for predatory lenders charging excessive interest.

Araceli and Javier, a Milwaukee couple, heard horror stories of immigrants losing their homes because of ballooning mortgage payments. But when they recently bought the house they were renting, they used an ITIN to get a fixed-rate mortgage that replaced their $600 monthly rent with a $454 payment. They send the bank $600 a month anyway, to pay off the loan early. They agreed to be interviewed on condition that their last name not be used, for fear of immigration enforcement.

Their lender, Mitchell Bank, hasn't had a single late payment or delinquency on the $3.5 million of ITIN mortgage loans it has made since 2000, said James Maloney, chairman. "These are our best-performing assets," he said. "These are folks who are appreciative of the fact that we're willing to take a chance on them."

Others offering the loans include Neighborhood Housing Services of America based in Oakland, Calif., Banco Popular in Houston, and the Self-Help Credit Union based in Durham, N.C.

Second Federal Savings of Chicago has made $90 million of ITIN loans in the past nine months, said Mark Doyle, chief executive.

Also in Chicago, First Bank of the Americas has executed $12 million in such mortgages since April 2004, said Frank Montanez, vice president for loan origination. "We see it not only as part of our charter, to help provide housing, but it's consistent with good business," Doyle said. "We have an outstanding credit history with that market. ... They have a good work ethic; they have a pride of ownership."

At Texas Bank in Fort Worth, ITIN mortgage customers often come in person after a sweaty day's work to make loan payments in cash, said Joe Barnhart, president of the mortgage division. The program is so popular that once in a while, someone with a valid Social Security number submits an ITIN application.

"Most of these loans don't get refinanced; most of these houses don't get sold and paid off compared to other groups of loans, which makes them more valuable to us," Barnhart said. "A much larger proportion of these borrowers pay ahead on their loans than the general population."

The Wisconsin Housing and Economic Development Authority offers ITIN mortgages through banks in the state, for a total $5.8 million so far, said Antonio Riley, executive director. The authority, a state-created organization that sells bonds to finance its operations, made $407 million in traditional loans last year.

"The growth in the homeownership market is in the minority and immigrant populations," Riley said. "We don't see what can be so controversial about helping people realize the dream of homeownership."

Detractors criticize the mortgages as encouraging illegal immigration, which strains the country's infrastructure and opens the door for terrorists.

"It is a threat to national security and public safety and is morally bankrupt," said Dan Stein, president of the Federation for American Immigration Reform, a Washington-based group that favors tighter immigration controls. "It breeds ultimate contempt for laws."

Banks "ought to be part of the solution in insuring that people who apply for mortgages and conduct other business are here legally," Stein said. "They went down the road of making a fast buck in a way that is frankly, in our view, inconsistent with the spirit of patriotism and federal law."

Supporters of ITIN mortgages point to the benefits that accrue when renters become homeowners: Crime drops and real estate values rise as residents take better care of houses and invest time and money in the community. "People who own their own homes have a much greater stake in their neighborhoods," Riley said.

Critics often overlook the fact that many households with an undocumented immigrant also include a legal permanent resident or U.S. citizen, frequently a child who was born here, said Harry P. Pachon, president of the Los Angeles-based Tomas Rivera Policy Institute, which researches issues that affect Latino communities.

"Everybody likes to think of this as a dichotomy where you're legal or you're illegal; it's really a pipeline," Pachon said. "Today's illegal immigrant is tomorrow's legal resident."

In addition to accepting ITINs, banks are being flexible when they look at creditworthiness, since many immigrants don't have a traditional credit history, said Anna Paulson, a senior economist at the Federal Reserve Bank in Chicago. For instance, the bank may consider rent and utility bill payments, or a history of sending money to family overseas as evidence that a customer is a good risk.

There are signs the ITIN mortgage market is maturing.

One company, Milwaukee-based Mortgage Guaranty Insurance Corp., now offers private insurance on the loans, which reduces risks for banks and makes the mortgages easier to resell. The Federal Deposit Insurance Corp. is helping a group of Midwest banks to develop ITIN programs.

Freddie Mac, the Federal Home Loan Mortgage Corp., is studying whether to buy the mortgages from banks, spokesman Douglas Robinson said.

Without the participation of a major institution like Freddie Mac or Fannie Mae, the Federal National Mortgage Association which together hold 37 percent of U.S. residential mortgage debt the spread of ITIN mortgages will be limited, Paulson said. Right now, most banks making the loans must hold onto them, rather than selling them for cash that could be used for additional mortgages.

"This is a bottleneck in this market," she said.