Setting the Record Straight on Mortgages for Undocumented Immigrants
A recent post on Zillow's discussion board asked an interesting question: Can undocumented immigrants receive mortgages?
"No," several respondents said flatly. Another, a mortgage broker from California, answered: "Yes, if they steal a citizen's identity first." The answers, whether tongue-in-cheek or real, were to be expected — and they are also wrong.
Undocumented immigrants have long been able to qualify for mortgages using an individual taxpayer identification number, which is assigned to them by the Internal Revenue Service for tax-filing purposes — no citizenship or Social Security number required.
Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals, said the misinformation within the mortgage industry stems from the lack of companies willing to offer the product.
"They are out there," he said. "But there are very few lenders. It's just not a widely known product."
Las Vegas-based Venta Financial Group is one of a few companies that have begun to offer mortgages to undocumented immigrants. This summer, it launched a program that offers ITIN mortgages in seven states: Nevada, Arizona, Florida, Georgia, Texas, California and Washington.
Jason Madiedo, president and CEO of Venta, said that with the 11 million undocumented immigrants that are estimated to be in the United States, the product is a good business opportunity and a way to "do some good."
"At the end of the day, the folks that are immigrants are here for the American dream and are here not to be renters all their lives," he said.
Because there is no secondary market for these loans, Madiedo said the interest rate is high at 7%, compared with the average of 3% to 4% for loans to permanent residents. Venta only offers these loans as 30-year fixed-rate mortgages, which he said makes the interest rate more manageable.
"We tell them the differences between a traditional mortgage with traditional interest rates and what we offer, and the payment that comes along with it depending on what they qualify for," he said. "They make the decision themselves."
Because undocumented workers typically do not have credit history, Madiedo said Venta conducts nontraditional credit checks, looking at everything from rental history to insurance and cellphone bills, a process that closely mirrors the FHA's requirements for similar checks.
While this seems like a novel concept, CitiBank has been offering loans through ITIN numbers since 2004 in partnership with the Neighborhood Assistance Corp. of America, which assists low- and moderate-income borrowers to receive loans, said Mark Rogers, a spokesman for Citi.
Rogers said the ITIN portion of the NACA program has fluctuated over time, and activity is "currently brisk" and "represents a very small and specialized portion of Citi's mortgage lending."
But, contrary to what many in the industry might assume about these mortgages, Rogers said the loans' performance "is similar to other loans made through the NACA program and perform somewhat better than our FHA loans."
Madiedo's company worked to sell ITIN loans before the financial crisis with the now-defunct Hispanic National Mortgage Association, and said the performance of the loans was well above those written to permanent residents.
"The [ITIN loans], even through the toughest times of the mortgage crisis, were showing record performances when the market was going in the other direction," he said, noting that default rates remained between 1% and 3% through the length of the crisis. Now that Venta is again able to offer the loans, he expects that rate to continue.
While many question what happens to the loans in the case of deportation, Acosta said this is only a small consideration.
"Deportation is a risk, but not a risk that showed up in a big way in terms of default," he said, adding that the people who take out these mortgages have established a network of family and friends who typically step in to help.
Venta's new program has started out very small and has so far only been able to attract five families. Madiedo said this is because undocumented immigrants are concerned that taking out a mortgage will call attention to their status.
"Part of it is being able to educate and get this type of consumer out of the shadows," he said. He said the solution is to educate them, and show them that "the opportunity for homeownership is real."
According to Allan Wernick, a New York City attorney and director of the City University of New York's Citizenship NOW! project, the misunderstandings on both the part of undocumented residents and the mortgage community are unfounded. He said he sees "no risk whatsoever" in an undocumented immigrant purchasing a home with a mortgage.
"If my mother were undocumented and she wanted to buy a house, I would say: 'Knock yourself out. You aren't going to get deported,'" he said.
He also said that while media accounts of undocumented immigrants lead mortgage originators to assume that all of them are poor, many are financially comfortable and would be able to qualify for a loan if they were offered to them.
While Madiedo and Acosta are confident that these programs will grow, Wernick said he does not believe these will become common enough to have a major impact on the market.
"Most undocumented immigrants come for work and never expected to live here permanently, even if that's what they end up doing," Wernick said. "In order to take out a mortgage you have to have a defined, long-term plan. Many undocumented immigrants don't really have that view."
Acosta admits the programs will grow slowly, and that he does not expect the loans to become less expensive in the near future as a result. Calling ITIN loans a "niche, albeit significant, market," Acosta said the expected slow growth will not impede the overall Hispanic home-buying market because the majority of interested Hispanic homebuyers are legal residents and can qualify for traditional loans.
But, he said, he believes the country will soon "recognize the economic benefits of this, and that they will become more common in the long term."