Fewer illegal residents apply for home loans
Deportation fears lead to big drop in applications
By Vanessa Bauza
Chicago Tribune staff reporter
November 13, 2007
Home loans to illegal immigrants have plummeted this year, bankers say, as a federal crackdown and a sluggish real estate market have combined to scare away potential buyers.
Chicago banks were among the first in the nation to offer the controversial mortgages earlier this decade, allowing applicants to use a taxpayer identification number provided by the IRS when they were unable to get a Social Security number. The loans proved popular.
And as the credit crunch put many borrowers in jeopardy in recent months, the so-called “ITIN” mortgages proved uncommonly stable — immigrants with such loans had far lower delinquency rates than sub-prime borrowers, and even had a better history of timely payments than borrowers in conventional mortgages.
“With all things equal, I would say our portfolio of ITIN [mortgages] is performing at least as good, if not better than our general market,” said Mark Doyle, president of Second Federal Savings and Loan in the Little Village neighborhood, a pioneer in the ITIN market. “Lenders who got involved with ITIN loans hit a home run.”
But Doyle says his bank is among those seeing a steep drop-off in ITIN mortgages. The number of clients seeking these unconventional mortgages from his bank has dropped by about 60 percent over the past year.
“I think people are more concerned about being arrested and being sent home … that means putting money under their mattress when they could be putting it in their savings account,” Doyle said. “It pushes people underground.”
In 1996, the IRS began providing individual taxpayer identification numbers, or ITINs, to foreign investors and immigrants — both legal and illegal — so that they could pay taxes. Several years later, some banks began accepting those numbers for loan applications from undocumented workers who had steady jobs and a proven track record of paying bills on time.
That quickly drew criticism from activists and politicians who believe the U.S. is too lax about enforcing immigration laws.
“It's a little nonsensical for banks to be making loans to people to buy houses they have no legal right to live in. Banks should not be in the business of subverting federal immigration laws,” said Ira Mehlman, spokesman for the Federation for American Immigration Reform.
But the loans were legal, and they soon proved to be a good investment.
Recent figures show ITIN mortgages have a .75 percent delinquency rate — payments 60 to 90 days late — according to the National Association of Hispanic Real Estate Professionals.
By comparison, 1 percent of payments on prime mortgages are more than 90 days late, according to the Mortgage Bankers Association. Sub-prime mortgages do much worse, with a 9.3 percent delinquency rate.
Experts say there are several reasons ITIN mortgages perform well. In many cases they are issued to multiple borrowers, so if one person loses his job, others can make up the difference, said Mari Gallagher, a Chicago-based consultant who has researched the market.
Also, ITIN loans are closely scrutinized. Many customers seeking ITIN mortgages have not built conventional credit histories, so lenders look to other documents such as promptly paid utility bills, a tab at a local furniture store or a letter from a landlord to determine whether they are credit-worthy.
ITIN mortgages take longer to underwrite than conventional mortgages, but the extra work pays off, said Munai Newash, a loan processor at ACORN Housing, a non-profit agency. None of the 15 delinquent mortgages issued through her agency's Chicago branch are for borrowers using ITINs, she said.
“Performance-wise I don't think they are risky at all,” Newash said. “The only risk is when scary laws are put into place that could hurt immigrants.”
Among many proposals to tighten enforcement of immigration laws, at least one congressman has targeted ITIN mortgages directly.
Rep. John Doolittle (R-Calif.) introduced a bill earlier this year that would require banks to use Social Security numbers to issue mortgages for a lender's primary home, but it has not gone up for a vote.
Stricter immigration enforcement has made some uneasy about buying a home.
Nolberto Casas, a real estate agent who works predominantly with Latino clients in the Brighton Park neighborhood, said about half the potential customers who have inquired about ITIN loans over the last six months have backed out.
“When people are in a state of panic because they are not sure if they are going to have a job anymore, buying a house is not a priority,” Casas said. “You want to hunker down. You want to keep more money in reserve.”
Rodrigo — a resident of Chicago's Southwest Side who declined to use his last name because he fears being deported — doubts he would take the plunge now.
A dozen years after he sneaked across the border from Mexico with little more than a change of clothes and $20, Rodrigo used an ITIN mortgage in 2005 to buy a two-story home. He relished the thrill of signing his closing papers and receiving the keys.
But with no hope for easing immigration rules in sight, Rodrigo said he would be far more hesitant to put down his life's savings on a home today.
“You don't know what will happen,” he said. “You don't know if you'll come back from work.”
ITIN mortgages represent about $4.5 billion in potential loans in the Chicago area, Gallagher estimates. That's a small slice of the overall mortgage market. But some argue the loans increase stability and prosperity in immigrant communities.
“It's a driver in the economy. It spurs local purchasing,” Gallagher said. “It helps families individually because they have an asset to develop. They can better leverage any emergencies that can come up.”
The number of Hispanic owner-occupied homes across the nation grew by 81 percent between 1995 and 2005, according to a report by the University of Notre Dame's Institute for Latino Studies.
Chicago's suburbs are now home to more immigrants than the city. ITIN mortgage holders, who used to be concentrated in neighborhoods such as Pilsen and Little Village, have moved to suburbs like Hoffman Estates or Palatine, Gallagher said.
Still she says many larger banks faced with criticism over lending to illegal immigrants have been reluctant to get into the business, leaving the market to smaller community banks.
Back in Chicago, Rodrigo says he can only hope that new rules favorable to immigrants will find their way back onto the congressional agenda after the presidential elections. He follows news of other undocumented workers who have been deported and wonders what his family would do if agents knocked on his door.
For now, he proudly shows off his home, which sits on a quiet, tree-lined street. In his daughters' room, painted orange and scattered with stuffed toys, the girls jump on their beds.
“We came to this country to get ahead,” Rodrigo said. “Seeing the smiles on their faces makes it worthwhile.”