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Banks reaching out to Hispanic market
Provident, others offer bilingual tellers, easier money transfers to appeal to the country’s fast-growing demographic group
By Laura Smitherman
Sun reporter

November 6, 2005

Jose Santos, who came to Baltimore from Honduras when he was a teenager, doesn't bank anywhere. The 22-year-old undocumented immigrant who works in construction does, however, have financial goals: To wire at least $500 a month to his family in Central America and to perhaps one day buy a home.

Santos, it turns out, may be exactly the kind of customer that a host of financial institutions from Bank of America Corp., the second-largest U.S. bank, to Baltimore-based Provident Bankshares Corp. are clamoring to serve.

Eager to appeal to the fastest-growing demographic group in the nation, banks are making it easier for clients to send money to Latin America and improving customer service by hiring bilingual tellers and financial advisers. Banks have also stirred controversy by offering mortgages to foreign nationals who might not be legal residents and accepting identification from other countries. Although some believe the industry's outreach is long overdue, critics say banks are encouraging illegal immigration.

Hispanics, including an estimated 11 million undocumented immigrants, represent a big business opportunity for banks. The market data is compelling - and often counter to stereotypes. About one-third of Hispanic households are squarely in the middle class with annual household incomes of up to $75,000, the same proportion as in the general population, and another one-sixth of Hispanic households could be considered affluent, U.S. Census data shows.

The Tower Group, a research firm, estimates that up to 70 percent of the growth for the financial services industry could come from the Hispanic market alone in the next several years.

While banks such as San Francisco-based Wells Fargo & Co. have been vying to attract Hispanic customers for several years, the trend is now expanding outside Hispanic-dominated regions such as Texas and Southern California. Hispanics make up just 2 percent of the population in the Baltimore area, but their numbers are growing, having topped 50,000 in the 2000 census, up 80 percent from a decade earlier.

"It's a good idea," Santos said, as he walked down Broadway on a recent afternoon in Fells Point, where an M&T Bank Corp. branch has translated its advertising into Spanish. "We need the services."

The banking programs that are open to undocumented immigrants have drawn some protest across the country from activist groups such as the Minuteman Project, best known for posting private citizens on the U.S.-Mexico border to stop unlawful crossings. The Minutemen staged demonstrations this summer at banks in Utah with signs accusing the institutions of "laundering" money for illegal aliens.

But Hispanic customers and advocacy groups have welcomed the initiatives, and federal regulators have promoted them.

The Federal Deposit Insurance Corp. formed a task force in Chicago to help banks tailor services to Mexican immigrants who settled in the Midwest, regardless of their legal status. Banks are required by federal law to meet the credit needs of the communities where they operate. Regulators decided this year to allow banks to get credit under the law for offering remittance services that send money to native countries.

"Banks need to take a look at their communities because there's a changing face out there," said David Barr, an FDIC spokesman. "With Chicago, for instance, everyone thinks of Eastern Europeans, particularly Polish immigrants, but today Chicago has the second-largest Hispanic population in the country."

Hispanic organizations, such as the National Association of Hispanic Real Estate Professionals, say that bringing immigrants into the banking fold cuts down on predatory lending to a vulnerable population and strengthens communities that benefit from higher homeownership rates and from residents building wealth.

Banks are following a path forged by Wal-Mart Stores Inc., Coca-Cola Co. and other retailers that began targeting the Hispanic market a decade ago. Hispanic purchasing power grew nearly 250 percent from 1990 to this year, to $736 billion from $212 billion, according to the Selig Center for Economic Growth at the University of Georgia.


A market to court
"Retailers have known for a long time that this is a market they should court, and the financial sector is really just catching up now," said Frances Martinez Myers, chairwoman of the Hispanic real estate association, based in San Diego.

Martinez Myers said Hispanics are more financially secure than ever, and banks have taken notice as affluent Hispanic households nearly tripled in the 1990s. "It's a price point issue," she said. "The ability of somebody to buy soda and food and clothing is significantly different than buying a house."

Banks are also looking for ways to grow as interest rates continue to rise, squeezing their profit margins, and as the once-booming business of refinancing mortgages has dried up.

Provident Bank plans to unveil its Hispanic outreach program this month. At certain branches, customers will be able to pick up a phone and talk to someone who speaks Spanish through the bank's service and sales line.

The bank also will offer so-called ITIN mortgages to foreign nationals seeking to buy a second home or investment property using an Individual Taxpayer Identification Number in place of a Social Security number.

The Internal Revenue Service has been issuing ITINs since 1996 to workers who are required to pay U.S. taxes but who don't qualify for a Social Security number, or who are in the middle of legalizing their immigration status. Many ITIN holders may not be qualified to work in the United States, according to the agency.

But neither the IRS nor banks have the authority or obligation to check an individual's legal status. "Anybody can get a loan from a bank. You do not have to have U.S. residency," Barr said.

The market for mortgages among illegal immigrants could be more than $40 billion, according to one study that found tens of thousands of undocumented renter households could afford homes worth $200,000 or more. Nationally, the homeownership rate for Hispanics is 49 percent, compared with 69 percent for the entire population.

One barrier to Hispanic immigrants obtaining a mortgage has been the lack of a credit history. About 40 percent of foreign-born Hispanics don't have a bank account, often using money orders to pay bills, according to the Pew Hispanic Center.

The First American Corp. of Santa Ana, Calif., recently started building alternative credit profiles on potential homebuyers for mortgage lenders with sources not normally considered by the credit bureaus, such as rental histories and payments to rent-to-own establishments. Some lenders also consider an applicant's receipts from remittances.

Industry experts say more banks will get into the ITIN business when they can find buyers for the mortgages in the secondary market. Banks often sell mortgages to spread out their risk. The Wisconsin housing authority has begun buying the mortgages, though the program has set off a furor in the state legislature and lawmakers are seeking to block it.

Bank of America, which is considering a pilot program for ITIN mortgages, has relied on its SafeSend remittance product to attract Hispanic clients. The Charlotte, N.C.-based bank announced recently that remittances would be free to Mexico for anyone with a checking account. Customers can send up to $3,000 to three beneficiaries in any 30-day period. The FDIC has recommended imposing limits to mitigate the risk of drug cartels or other criminals using the remittances to launder money.


Money flow
The money flow to Latin American countries from the United States reached $34 billion last year, according to the Inter- American Development Bank, accounting for a significant percentage of the gross domestic product in a number of those countries. Mexico alone received $16.6 billion in remittances last year, according to Mexico's Central Bank - or about the same amount that foreign companies invested in the country.

U.S. banks have been able to charge low fees, undercutting wire transfers offered by companies such as Western Union Financial Services Inc., with a program the Federal Reserve is promoting. Under the Directo a Mexico program, money is sent through a payment network set up by the nations' central banks.

Wachovia Corp., also based in Charlotte, began offering a different kind of remittance product nationwide in recent weeks. Its bank customers with a checking or savings account, for a $10 fee, can put up to $1,000 a month on a card that can be sent to friends or family and used to withdraw cash from an automated teller machine.

Wachovia has designated branches as Hispanic financial centers where at least some employees speak Spanish and brochures are in the language, including a branch outside Baltimore in Jessup.

The Jessup branch's manager, Ricardo Cardenas, estimates that almost a third of his customer base is Hispanic. Born in Mexico City, Cardenas said his parents used to keep the bulk of their savings in U.S. dollars in their closet because they didn't trust the Mexican banks. He said banks here must overcome such suspicions while rolling out their new products and Spanish-language services.

"The Hispanic clientele is very loyal, and they can be very wealthy," Cardenas said. "If they see that you take care of them, they're going to bring in their family members and tell their friends about you, and when their co-workers ask where they bank, they're going to remember you."