Despite unending attempts to step the flow of illegal immigration to the United States through an increasingly militarized border, the mortgage lending industry was not about to pass up the chance to capitalize on the estimated 12 million illegal immigrants in the United States looking for their own slice of the American dream.
Enter the "ITIN Mortgage." During the expansion of the housing bubble, many lenders offered home-mortgage loans to undocumented immigrants without requiring Social Security numbers. While lenders used to require a Social Security number and verified income, those requirements obvioiusly changed during the loose lending days. Indeed, if lenders were willing to lend money to legal residents without a job or income (think "NINJA" loans), why not lend to people who are not even legal residents of the United States?
As the lending industry loosened, lenders began allowing illegal foreign nationals to use a taxpayer identification number ("ITIN") to qualify for a mortgage. The IRS issues ITINs to both resident and nonresident aliens so they can pay taxes. Obviously, the U.S. Government is not going to pass up a chance to collect taxes from undocumented residents. According to the Government Accounting Office, a significant number of the nearly 9 million holders of ITINs are illegal immigrants.
Tim Sandos, President and Chief Executive of the National Association of Hispanic Real Estate Professionals estimates that since 2000, illegal immigrants have taken out more than $1 Billion in ITIN mortgages. Interestingly, as National Public Radio recently reported, ITIN mortgages have on average out performed conventional mortgages. In part this is due to borrowers putting 20-30% down on a mortgage. More than can be said of most borrowers today. Amazingly, it has been reported that ITIN mortgages have had a delinquency rate of one half of one percent, compared to 6.4% for all home loans.
While ITIN mortgages have been big business, the tightening credit market has necessarily impacted this area of lending. Moreover, as the immigration debate has intensified, these mortages have come under increasing pressure. Indeed, Tim Sandos, when he worked for Citigroup received death threats because he was working with illegal immigrants. In 2007, Representative John T. Doolittle of California introduced a bill in Congress that would prohibit financial institutions from providing home mortgages to anyone who lacks a Social Security number. The bill, H.R. 480, would have amended the Truth in Lending Act to make ITIN mortgage lending illegal.
Given the surprising stability of ITIN mortgages, lenders certainly are not inclined to shed these solid performers, but the political and credit climate is changing that. Indeed, as recently reported in an Active Rain blog, Banco Popular, the largest niche provider of ITIN mortgages, will no longer provide such loans. Perhaps the ITIN mortgage will disappear like the American Ninja.