Earlier this week we continued our series on the projected effects of the new Arizona legislation designed to prevent and punish illegal immigration in that state. Specifically, we focused on the lenders, brokers and real estate agents in that state who believed, rightly or wrongly, that they were not responsible for determining whether or not their homebuyers were legal residents of the United States. There were a variety of responses from readers, including people who felt that everyone involved in the purchase or sale of a home was responsible for the due diligence regarding the new borrower to people who appeared to believe that most loans to “illegals” are “100% legal.” The latter group also believed that it was unlikely that illegal residents were defaulting on their loans in large numbers, and requested that we investigate this hypothesis. So we did.
First, we researched the assertion that it is possible to make a legal loan to an illegal alien. We found that this debate went on throughout the real estate boom, but that while it is against federal law to “violate borders, overstay visas and recruit, harbor and encourage illegal aliens,” there were and are a number of loopholes in the U.S. lending process that make the “illegal alien home loan” perfectly legal[1]. This is because no proof of citizenship is required for a home loan – only proof of identification. And anyone can own a home, regardless of criminal background, which is seldom checked, making it possible for an illegal resident to use an Individual Taxpayer Identification Number (referred to as ITIN or just TIN) to secure a home loan. While ITINs are “not valid identification outside the tax system,” there is no specific prohibition against using them as identification in other ways, a situation of which lenders have taken advantage to issue loans to illegal immigrants without a social security number[2]. Recently, the application process for ITIN numbers has been revised by the IRS to help “ensure ITINs are used for their intended tax administration purposes.”
So, we have established that the lenders were not breaking the letter of any laws by issuing loans to illegal aliens, but what about the number of illegals defaulting on their mortgages? Not surprisingly, these numbers are difficult to come by since the entire identification process is somewhat difficult. Particularly in light of recent stabs at immigration reform, illegal residents of the United States that have put down roots and purchased homes are not rushing to fill out surveys about how, why and how long they plan to pay their mortgages. However, we were able to find some information on the topic. According to an interview conducted by NPR in 2007, Jason Madiedo, president of Venta Home Loans, declared that making home loans to illegal immigrants is “good business strategy” in addition to “giving you the warm fuzzies” because homeownership plays a major cultural role in a family’s financial security and illegal aliens are a “not a market that’s really being tapped”[3]. The interviewer noted that as of the date of the interview, only one-tenth as many illegal immigrants default on sub-prime loans. Leonardo Simpser, managing director at the time of the Hispanic National Mortgage Association, cited “careful screening” practices of scrutinizing late payments on utilities, remittance of money to other countries and ownership of a cell phone as methods that they use to identify good illegal alien borrower risks. Venta Home Loans is still doing business in Nevada, Texas and California.
Hard numbers on illegal immigrants and foreclosure rates, however, are difficult to find from an objective source. No one seems interested in touching this delicately vague topic. Foreclosurelistings.com published an article in 2008 stating that “the approximate estimation is that among those with ITIN who had taken loans the default rate was lower by 1.15% compared with 3.5% of other loans in 2006,” but they do not cite their source of information and go on to attribute this difference to the “strong family base, grit and love for the home that was not just a house of bricks and mortar”[4]. Heartwarming, but not particularly helpful – and the data was, at best, outdated. Since then, there have been some studies of lending abuse and mortgage fraud schemes targeting illegals, but no careful scrutiny of the “legal” method of accepting an ITIN number – which is explicitly declared by the IRS as not being anything other than a taxpayer I.D. – as proof of identification.
If we were to hypothesize about the state of illegal residents’ legal mortgages, however, it would stand to reason – pleasant homilies on the importance of family and integrity aside – that they would go to great lengths to keep them in good standing both to avoid the attention and because it is becoming increasingly unlikely that the former method of procuring such a mortgage will work again in the future. However, in a situation like the one in Arizona, wherein it is going to be far less probable that an illegal alien can easily live, work and navigate the local area without scrutiny anyway, it seems likely that strategic and forced defaults would, of necessity, rise as illegal immigrants were forced to abandon the geographic area. As yet, however, these foreclosures are still prediction rather than fact. Only time will tell what impact Arizona’s new bill will have on its housing market and whether or not the net result will be an influx of new, legal residents or an exodus.
[1] http://www.capitalismmagazine.com/politics/immigration/3051-Home-Loans-for-Illegal-Aliens.html
[2] http://www.immihelp.com/newcomer/itin.html
[3] http://www.npr.org/templates/story/story.php?storyId=17597739
[4] http://www.foreclosurelistings.com/content/foreclosures/illegal-immigrants-avoid-foreclosures.htm
At the height of the housing boom it was often said that if you could fog a mirror you could be approved for a mortgage. But the truth was that borrowers that did not have a FICO score had only one option – FHA. Lender’s reliance upon FICO was a large reason for the collapse – it became commonplace for lenders to waive documentation requirements when borrowers met specific FICO levels. Most illegals that attempted to obtain mortgage loans through the use if a ITIN most likely did not have a FICO score and were then either turned away or pushed into FHA where documentation requirements were always more strict that traditional loans. Therefore, I believe that the estimates of how many illegal aliens obtained mortgages are exaggerated.
I read a commentary that a quick way to eliminate the backlog of unsold homes would be to offer a green card to immigrants if they purchase a home. We do that now for people if they invest $500,000 into a business.
I’m not sure how much things have changed since I applied for my home loan (conventional 30 yr fixed) especially with the creation of the shmorgersboard of products that were available. In particular, I had to devulge information regarding my bank accounts, checking and savings. Last time I opened a bank account I had to provide several forms of ID in compliance with the anti-laudering and the Homeland Security requirements.
If I were in this country illegally wouldn’t some items in this chain be missing that would have prohibited me from obtaining a mortgage?
Five Million Illegals have receuved mortgage in A M E R I K A
while millions of Americans have never had one.
This is called Progress by one group of voters which the following words describe DEMONrats Progressives Liberals Socialists
The Gov.’t has E-Verify as passed by Congress. Problem is they being idiots did not make it mandatory. An employer calls a phone no. gives SSN 3 etc. + in a few minutes the person’s
info as to legal status is verified.
So if mandatory all the FRAUD would be eliminated.
But doing the right thing is never a part of Gov.’t of Commies .
They are much more interested in Laws against RE Investors.
AAAhhhh Hope + Change we can believe in ! !
This is a bad timing for this economy trying to cut off the demand of housing from the “illegals”.
Next, it may be ….show me ur proof of citizenship before u purchase a a dvd on a credit………a sure train wreck!
This econ as well as this housing market needs everybody to come on to invest.
Thanks
I find it amusing that comments by Bob G appear without being moderated, (example – “Five Million Illegals have receuved mortgage in A M E R I K A”, and “This is called Progress by one group of voters which the following words describe DEMONrats Progressives Liberals Socialists”.
And yet, all of my comments are moderated. (Read that to mean sensored.)
Jim Myers
Grow up Jim. EVERY comment is moderated before published. Both those that are silly by using words like “A M E R I K A” and those that complain about moderation. Note – you can only be censored if you have a right to be heard. You have no such right here. I publish your comments because I’m a nice guy and want to have lots of things for people to read here. Don’t get too self-important… you’re not entitled to anything here, bucko. — Bryan Ellis
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Thanks for looking into the issue and reporting with this article–Keep up the good work!
On a related note, if you didn’t already know, illegal immigrants are granted drivers licenses here in New Mexico and we are seeing even more lining up at the local DMV offices to get them.