Mortgages for illegal immigrants getting more common
When he came to Seattle from Los Angeles eight years ago, the married father of three young sons wanted to buy his family a home. Nothing fancy — three...
Seattle Times staff reporter
When he came to Seattle from Los Angeles eight years ago, the married father of three young sons wanted to buy his family a home.
Nothing fancy — three bedrooms, in a neighborhood close to schools and with a yard big enough for the boys to romp about.
He'd landed a job in the construction industry that paid good money, and he had a tidy sum to put toward a down payment. But it's what he didn't have that worried him the most:
A legitimate Social Security number.
A credit file.
Legal immigration status.
How such mortgages work
In Seattle, El Centro de la Raza operates what appears to be the only community-based program in the state for these kinds of loans, through a national program called Building a Life in America.
El Centro makes clients bank-ready by counseling them and gathering their income information and credit histories into a package lenders can approve.
Borrowers must have an individual taxpayer identification number, known as an ITIN.
They must show two or more years of residency and tax returns.
Mortgage rates are one to 1-½ percentage points above prevailing rates and usually require 3 percent down.
In the absence of a traditional credit history, they may prove good credit through payment of such bills as car notes, rent, utilities and insurance.
Building a Life in America is run by the country's largest private mortgage insurer, Mortgage Guarantee Insurance Corp. (MGIC), which partners with about 200 small, conservative lenders and a string of community organizations in 41 states.
Geoffrey Cooper, MGIC's director of emerging markets, said MGIC protects lenders by guaranteeing a portion — typically 25 to 35 percent — of each loan. In the event of a default, that level of protection, coupled with the market value of the property, is generally enough to make a lender whole, he said.
"I was very honest with my Realtor from the start," he said. "I told him I didn't have a Social Security number and that I was undocumented. He said it wouldn't be a problem ... ."
Mortgages to illegal immigrants were rare in 1999 when he closed on a $144,000 home in Federal Way. But they've become more common as a still-small but growing number of brokers and lenders see potential in the nation's burgeoning immigrant population — particularly Latinos.
That's not to say the practice is widely accepted. Some lenders won't touch these loans, in part because illegal immigration is so controversial an issue in this country. And in many cases, lenders who do make these loans charge higher interest rates.
The illegal-immigrant buyer from Federal Way, who asked that his name not be used because of the stigma associated with illegal immigration, applied for a mortgage through a national bank. Instead of a Social Security number, he used an individual taxpayer identification number — known as an ITIN — which the IRS issues to foreign nationals for paying taxes on money they earn in the U.S.
The man's employer wrote him a letter of support, and instead of a credit score, his history of paying rent, utilities and other bills served as his credit history.
"Getting a loan should not be about immigration," said Arturo Gonzalez, housing director for El Centro de la Raza, which operates perhaps the only community-based program in the state for helping illegal immigrants buy homes. "Do you work? Do you pay your bills?
"It's not illegal for an undocumented immigrant to buy a house in this country."
But the Federation for American Immigration Reform, a national group opposed to illegal immigration, believes federally regulated financial institutions should not be making loans to people in this country illegally.
"It's aiding and abetting — encouraging people who are breaking the law," said the group's spokesman, Ira Mehlman.
Huge demand for loans
Among the nation's estimated 12 million illegal immigrants, many of whom build dream homes for American families, are those who long for a home of their own.
After years in the U.S., often paying taxes and often at the same jobs, a growing number of illegal immigrants are seeking ways to achieve that quintessential American dream.
In Seattle, El Centro de la Raza, which mainly serves Seattle-area Latinos, has worked with two small local lenders, Plaza Bank and Liberty Financial, to help illegal immigrants obtain mortgages.
Since this spring, El Centro has closed a handful of mortgages, most for homes in South King County.
"There's huge demand for these kinds of loans," said Jean Withers, Northwest regional director at Acorn Housing, a Chicago-based community organization that operates a program to help low- to moderate-income and illegal-immigrant households buy homes.
Acorn doesn't offer such mortgages for illegal immigrants in Washington because its partner lender in the program, Citibank, has no presence here, Withers said.
"We have to remember that for people who leave family to come to the United States, and are able to buy a home, it is both a personal dream, a family dream and a sign of success."
Latinos account for the largest proportion of the illegal immigrants in the U.S. Legal and illegal, Latinos are the nation's fastest-growing ethnic group, increasing by about 1.7 million people a year.
By the end of the decade, Latino purchasing power is expected to approach $1 trillion a year, from $735.6 billion last year, according to a study by the University of Georgia's Selig Center for Economic Growth.
"The Hispanic community places a high value on home ownership," said Mary Mancera with the National Association of Hispanic Real Estate Professionals. "It's the center of hearth, home and family.
"They don't take the responsibility of making mortgage payments lightly."
With all the controversy surrounding illegal immigration, lenders aren't leaping in large numbers to offer these loans.
The loans are complicated, and despite statistics that show low delinquency rates — lower than in the traditional market — some lenders see them as unproven and risky.
In some cases, borrowers pay for that risk with interest rates from legitimate lenders that can be one or two percentage points higher than the prevailing market rate, and rates from predatory lenders that can be twice as high.
"That's a real problem," said Bruce Dorpalen, Philadelphia-based director of housing counseling at Acorn, pointing out that the interest rates on Acorn loans are at or below market rate.
In predatory situations, "people face rapidly escalating adjustable-rate mortgages, prepayment penalties, balloons and lots and lots of fees, junk fees."
But perhaps the biggest obstacle for lenders is the lack of a secondary market for loans to illegal immigrants.
Housing finance companies Freddie Mac and Fannie Mae, which purchase home loans from lenders and repackage them for sale to investors, won't touch mortgages to illegal immigrants, leaving lenders to hold and service them in-house, a strain on capital.
Tested in California
It is not clear how many loans to illegal immigrants are being written here or across the country, since no single agency monitors this line of business.
While some big national banks like Wells Fargo are offering them in test markets in California, others, like Acorn's lending partner, Citibank, extend them only in areas where they do business.
Some borrowers go directly to mortgage brokers, who then shop lenders for the best deal.
Area real-estate agents say that while the demand for home ownership among illegal immigrants in this region is strong, it's going largely unfulfilled. That's in part because many would-be borrowers have Social Security numbers that aren't legitimate, raising a red flag as soon as they try to use it to apply for a loan.
Roberto Molina, a real-estate agent with Coldwell Banker in Federal Way, said he receives calls regularly from immigrants with questionable Social Security numbers asking if they can buy a house.
"I don't know these folks. So I say, 'I don't know if you can buy a home. Let's run the numbers and see.' " The home buyer from Federal Way said he and his real-estate agent worked directly with a major national bank.
He said he paid a rate of 8.5 percent for the mortgage, at a time when the going rate was around 6 percent.
A year ago when he was able to obtain his green card, the government gave him a valid Social Security number. He asked the banks to reflect that number on his mortgage papers.
It felt good, the 36-year-old said. "I no longer had to worry about what would happen to the house if I were sent back."
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