Saturday, January 19, 2008

ITINs and mortgages: Should undocumented aliens get mortgages?

Last summer, the Gonzalez Group, a Texas-based national consulting firm that advises Realtors how to effectively market themselves to minority groups, included a story in their newsletter about lending money to undocumented aliens. They said that Wells Fargo in southern California and Deutche Bank and some other bankers were lending money to people who didn't have Social Security numbers. Instead, they were using "ITINs" -- Individual Tax Identification Numbers -- to process the applications.

I called George Hellerman at the IRS about this. Many of you know George without knowing you know him. He does our weekly Median Home Prices Chart in the Sunday Real Estate section of the Courier News. We don't pay him enough to live on, of course. His real job is at the IRS. And since ITINs are issued by the IRS, I figured he'd know something about it. Actually, all he could do was confirm that they issue them. He's not really authorized to talk to the press about this stuff, but he did refer me to someone who could. And that guy told me that ITINs are issued to people who want to pay taxes but don't have and can't get a Social Security number. The official IRS policy is that they do not issue ITINs for the purpose of official identification for anything other than paying taxes.

It turns out the most obvious and common reason why someone needs an ITIN is that they are here without papers. "Undocumented alien" is a polite way of saying "illegal alien."

Now it turns out that undocumented aliens in the white-collar sector actually earn substantial amounts of money and are usually somewhere in the process of becoming legal. They came here legally and overstayed the time permitted on their visa. Maybe they came as a student and found a professional job here, so they stayed. And they're applying for permanent residency or citizenship, and while they're in the lengthy application process, which can take years, I'm told, they get an ITIN.

I'm not making a value judgement here. I'm not Lou Dobbs. I'm just telling you that your federal government has found a way to process the income taxes of people in this predicament: The government lets them stay here and gives them ITINs. If you don't like this, then talk to our representatives in Congress. That's another issue.

Back when mortgage money was flowing freely, as recently as this past summer, it was fairly easy for someone with an ITIN to get a mortgage in New Jersey. I only bumped into this fact in late July, early August, just before the subprime mortgage crisis hit. So when I started calling banks to get more information about it, at first, they would talk to me. But then they clammed up. One Realtor in Plainfield, Monica Caballero at Exit Realty Eagles, told me that her company had been selling homes to people with ITINs. She told me that after June, though, it got harder because in June, banks generally stopped lending money to people with no downpayments. She said I should write a story about how we need more programs for people who can't afford to buy because they have no downpayment.

Of course, that was in early August, before the subprime crisis hit, and now no banks are doing loans with no downpayments. And frankly, nobody admits to doing ITIN loans anymore, so I gave up on writing the story.

But maybe I should revive it. In Friday's HomeGuide, I printed a very lengthy statement from the CEO of Fannie Mae, one of the two government-sponsored enterprises in the mortgage business. You probably didn't read the whole thing. I admit it was overly long. But if you stuck with it or skipped to the end, you saw that he was advocating ITIN loans for new Americans. He actually capitalized it as "New Americans," but we used the lower case "n." He wants to find funding for undocumented aliens again.

The other side of the coin
When I was researching this story last summer, I talked with a spokeswoman from Wells Fargo Bank in Red Bank about their program. I don't have her name handy, but she's the "Emerging Markets" officer for this region, and she's very knowledgeable. She told me that Wells Fargo set up their ITIN program in southern California as a pilot program and that they had expected to make hundreds of loans. They made less than 10. The reason is, Wells Fargo insisted that if someone was applying for a loan using an ITIN instead of a Social Security number, they had to provide some proof that they were in this country legally. She told me that most people who are here illegally will get phony Social Security numbers to pay their taxes rather than use an ITIN. She also said that Wells Fargo was thinking of dropping the program.

Deutche Bank wouldn't talk to me. Oh, someone in the PR department answered my phone calls, but the she could never get the bank officers involved in funding mortgages for applicants with ITINs to talk to me. And when I told her I wanted to know if, as a bank owned by foreign nationals, they were selling securities backed by ITIN loans overseas, she told me they'd never answer that question anyway. The only message I got was that she didn't think they'd actually securitized any blocks of these loans yet.

I talked to a spokesman at the National Hispanic Mortgage Bankers Association, a group that had an agreement with Deutche Bank to fund these loans. If I remember correctly, the association was going to get its members to make these loans, and then the association was going to sell these loans to Deutche Bank who would securitize them--sell bonds secured by these loans. He was very enthusiastic about the program, but when I asked him to give me the name of a member or two in Central Jersey whom I could interview, he never did. He said he would, but he never did. Maybe they weren't making any loans here anymore by that time.

All I can say is that by the end of August, the mortgage bankers who would talk to me were telling me loud and clear that the money had dried up for these loans and it was no longer a story.

Fannie Mae could change all that
That's why it's so significant that the head of Fannie Mae is saying that his organization would look favorably on funding ITIN loans. If his organization is willing to back such loans, then undocumented aliens will be able to buy homes here again. This practice will become more mainstream than ever before.

Personally, I'm not sure how I feel about this. The spokesman at the National Hispanic Mortgage Bankers Association pointed out that the ITIN loans have had a very strong performance record, that they outperform the market as a whole, meaning that the people who get these loans pay on time and very rarely default. From a banker's point of view, they're a good investment. And a lot of bankers I talked to have said that bankers should not be in the business of judging a person's right to be in this country. One guy said, "We're not the Department of Homeland Security." And while that might seem like a laughable statement, I guess I really don't see my local bankers as Homeland Security or Immigration officers.

But if Fannie Mae starts funding ITIN loans, and thousands of illegal aliens start buying homes in this country, is that really the best thing for our economy and national security?

What's your opinion?


pacman said...

Dear Pat
Is the word illegal, a true or honorble statement to describe how most americans came to this country. Are these current immigrants any diffrent.

And How is possible to dismiss their creditbility so quickly, isn't it honarble how these i.t.i.n borrowers pay their mortgage and have an empressive low rate of forclusure.
Well it should not surprise you, it is only U.S history repeating itself. Immirants historicaly have always been the most grateful and appreciative of what this country has to offer.

So yes i agree with "fannie mae' this an opportunity to give our new american an identy as U.S homeowners and help resolve our current crisis due to greed, and all we need is know the diffrence between patriotism and nationalism. and some humility would't hurt either.

gerardojr85 said...

way to go pacman great comment