Mortgages for the Undocumented: Tax-number loans help immigrants buy homes
/- Originally published in the Chicago Tribune August 16, 2004
By Rhasheema A. Sweeting, Tribune staff reporter.
Several Chicago-area banks are leading rapid growth in a new, more flexible type of home loan that allows immigrants without Social Security numbers to secure a mortgage.
Lenders have become more willing to use individual taxpayer identification numbers--issued by the Internal Revenue Service to allow undocumented workers and others without a Social Security card to pay federal taxes--to gauge the income history of a borrower.
Backers of such loans say the interest from the financial community is a response to the growing number of undocumented immigrants living, working and paying taxes in the United States.
Chicago has the second-largest Hispanic population in the nation, trailing only Los Angeles, and an estimated 425,000 undocumented immigrants.
And the city is leading the way for taxpayer identification number-based loans, according to preliminary data from Metro Chicago Information Center, a non-profit research group that tracks Hispanic immigrant population and community banking.
Nationwide figures for these loans are not available because the market is new and consists primarily of small, scattered players, said Mari Gallagher, senior consultant of the research center.
"There's a hunger for information about it, including questions on how these loans perform now and how they will perform, how should lenders assess creditworthiness without credit history, and how to determine a good borrower from a bad borrower," Gallagher said.
And once more information is available, observers believe that the number of these loans will continue to grow.
Already within the past month, two large banks--Cincinnati-based Fifth Third Bancorp and Wayzata, Minn.-based TCF Financial Corp.--announced they would begin offering these loans in all of their markets.
TCF, an $11.9 billion-asset bank with 192 locations in the Chicago area, said it has already made 10 loans based to those presenting taxpayer identification numbers, according to David Creel, senior vice president of marketing for the banks. Fifth Third, a $95.6 billion-asset bank with 125 locations around Chicago and northwest Indiana, will begin its program this fall.
Such loans are also getting backing from other entities such as the Milwaukee-based Mortgage Guaranty Insurance Corp., the nation's biggest provider of private mortgage insurance. It sells policies that protect the lender if the borrower defaults.
Since insuring the first such loan a year ago, the company said it is insuring about two new loans per day, or about 300 since 2003, according to Geoffrey Cooper, director of emerging markets for the insurer.
Mortgage Guaranty Insurance is testing a "Building a Life in America" program in Wisconsin, Chicago, and several cities in Texas along the Mexican border.
In Wisconsin, for example, it partnered with the Wisconsin Housing and Economic Development Authority to insure several of the taxpayer identification number-based loans.
Because the loans are considered riskier than conventional mortgages, some banks require borrowers to take out private mortgage insurance, which is about $65 a month per $100,000 borrowed.
"It's astounding when you look at the influence in most cities in this country," Cooper said of the Hispanic immigrant community. "It's there and it's influential. If you don't have this program, you're ensuring that areas have low home-ownership rates. The program is vital to economic sustenance."
Cooper believes that more lenders will begin offering loans based on tax numbers, considering that the number of lenders in the insurer's pilot program jumped to 21 last month from 12 at the end of May.
Six of these 21 lenders are in Chicago--the highest concentration in a single market, he said.
"Activity is greatest in Chicago, and a lot of eyes around the nation are on Chicago," Cooper said. "Chicago is the epicenter of this discussion."
One participant is the First Bank of the Americas, a small community bank with four locations in the Chicago area that is working with Mortgage Guaranty Insurance to expand its "My Home in America" program.
Since April, the bank has made 14 loans to those without Social Security numbers. The loans average about $128,000 each, with the majority of them insured, according to Frank Montanez, vice president of loan origination for the bank. And an additional $5 million in loans based on tax numbers are pending, he said.
While interest is heightened, such loans have been around for several years.
Second Federal Savings, a thrift based in the Hispanic Little Village neighborhood of Chicago's West Side, was one of the first in the United States to pioneer the niche mortgages.
With its "Amigo Accounts" in 2001, Second Federal became one of the first lenders to tap into the undocumented-worker banking market by allowing customers to open bank accounts using a tax number and a photo-ID card known as the matricula consular, issued by the Mexican consulate.
Opening a bank account based on a number issued by the IRS is one thing. Making a $150,000 mortgage loan on the basis of a tax number is more complex, says Second Federal President Mark Doyle, adding that it was a logical next step.
"This community of people has been here for 10 to 20 years, and it's a community of people that we can provide home ownership to," Doyle said.
Since January, Second Federal has made $23 million in these special mortgage loans. It makes 200 every month, according to Doyle.
"We have a crystallized understanding that these people exist and that they're not going anywhere," Doyle said. "We're helping people get established."
And, so far, participating banks say they are pleased with the results--saying they have not run into problems with delinquent payments or defaults.
"It's a great thing, and the concept of doing it makes an awful lot of sense," said Bob Armbruster, president of the National Association of Mortgage Brokers. "It's a whole new field that needs some more pioneering, and community banks seem to be the venue."
For Maria Madrigal, the loans are a dream come true.
Madrigal had always wanted a house, and her job paid enough for her to buy one.
There was just one problem: She and her husband are undocumented workers who have been living and working in Chicago for the past 14 years. Immigrants from Mexico, neither has a Social Security number, which had prevented them from applying for a home mortgage.
The solution for Madrigal, and her family of five, was a mortgage loan based on her tax number, which she obtained through Second Federal.
"Thanks to this bank, we have a home," said Madrigal, who purchased a single-family house in 2001.
Not everyone supports such programs, however.
Critics of such lending say it's wrong to make loans to people who are in this country illegally and subject to deportation if they're found.
Susan Tully, Midwest field director for the Federation for American Immigration Reform, calls mortgages based on tax numbers a "ridiculous notion," noting that immigrants are being granted the same privileges as American citizens.
"It's ridiculous for financial institutions to look the other way on federal laws," she said. "Banks don't really know who they're dealing with. And what's hokey about the whole thing is that immigrants often use a variety of names and identifications, and they can be who they want to be."
While the debate continues, the two financial institutions that buy most home loans from banks and other lenders, Freddie Mac and Fannie Mae, continue to eye the market from the sidelines.
Currently, the two financial institutions won't buy mortgages based on tax numbers. As a result, banks that issue such mortgages have to keep them in their own loan portfolios, which limits the number of such loans they can make.
However, insiders speculate the two institutions may soon enter the market.
"It's just a growing market, and I believe in 12 to 18 months both agencies will see the value of this type of product," Montanez said, referring to Freddie Mac and Fannie Mae. "They are a conduit of cash for us to keep on doing the lending."
In the meantime, Madrigal has recommended about 20 other people with tax ID numbers to apply for mortgages at Second Federal. And she is glad that she no longer has to pay rent.
"My kids are better now because I have more money left over for them," said Madrigal, who is looking to buy a bigger home.
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Inside the mortgages
What are they? Traditionally, those seeking a mortgage had to provide a Social Security number. But the rule was a barrier to immigrants who don't have them. Now more banks are courting the growing immigrant market by offering loans based on taxpayer identification numbers used by the Internal Revenue Service to collect taxes from undocumented workers.
Why are they here? Chicago has the second-largest Hispanic population among U.S. cities and roughly 425,000 undocumented workers. Six of 21 lenders offering these loans are in Chicago, the highest concentration in a single market.
Who's offering them: Major banks like TCF Bank and Fifth Third Bank are just getting into the market. Some small community banks and thrifts have been offering them for several years.
Who doesn't support them? Currently, mortgage bundlers Fannie Mae and Freddie Mac are not willing to invest in these loans. Others criticize lenders for making loans to those who are not in the country legally.
