Thread: Loans to illegal immigrants stir opposition, questions

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This story ran on nwitimes.com on Wednesday, August 17, 2005 12:41 AM CDT

Loans to illegal immigrants stir opposition, questions

BY KEITH BENMAN
kbenman@nwitimes.com
219.933.3326
Home loans for illegal immigrants are raising the hackles of groups opposed to illegal immigration, and the security of the loans is still under study by some financial institutions.

The Federation for American Immigration Reform (FAIR), a group opposed to illegal immigration, sees banks' aggressive marketing of products to undocumented aliens as part of broader movement, according to Ira Mehlman, FAIR communications director.

That movement allows illegal immigrants to use Mexican government-issued identification for obtaining driver's licenses and to pay in-state tuition at state universities, Mehlman said.

"The next big thing just seems to be lending and mortgages, because banks see they can make a buck off these people," Mehlman said.

On Tuesday, Bank Calumet announced it would begin extending home loans to illegal immigrants, becoming the first locally-based bank to do so.

The loans are known as ITIN loans in the banking business, because borrowers can use their individual tax payer identification number, issued by the Internal Revenue Service, in place of a Social Security number on the loan application.

Only legal immigrants can get Social Security numbers. Illegal immigrants are issued ITINs by the IRS so they can pay taxes and file tax returns.

Financial institutions have been giving the ITIN loans a close look. Some still have concerns about their security.

Fannie Mae and Freddie Mac, the federally chartered institutions that buy home mortgages from banks to sell as securities, will not buy ITIN mortgages. Both institutions are in the midst of studying borrowers' ability to repay such mortgages.

Because those two institutions will not buy them, banks generally hold the loans in their own portfolios. The banks require borrowers to pay mortgage insurance that can add as much as $65 per month to loan payments. The mortgage insurance covers the lender's investment in case of default.

Bank Calumet will require mortgage insurance at first, according to Cal Bellamy, Bank Calumet chairman and chief executive officer. But once an individual borrower has established a good history of making timely payments on the loan, it will be dropped.

Bank Calumet will also demand proof of a good credit history by looking at a borrowers' utility and other payments. In addition, borrowers will be required to take home buyer classes.

"How do you get people with strong family ties, who work every day, and are law abiding into the American way of life," Bellamy said. "That is the goal for what we are doing."

Banks reported virtually no defaults on ITIN loans during pilot programs run in 2003, Federal Deposit Insurance Corp. spokesman Michael Frias said when he reported on the effort last year.

The FDIC and banks two years ago formed the New Alliance Task Force to expand banking opportunities in immigrant communities. That task force has 40 member banks.

Those banks have made about 800 ITIN loans since then, with a total value of $100 million. It has also led to the opening of about 70,000 bank accounts by customers using Mexican-government issued identification cards and ITIN numbers.

That is still not a large number of loans. Many individual banks originate far more than $100 million in home loans in a single year.

More than 300 bankers showed up for a New Alliance Task Force briefing at the Mexican Consulate in Chicago two years ago. Almost all were interested in the ITIN loans. But FDIC statistics show only a small number are actually now doing it.

FAIR is also concerned about the possibility of defaults on such loans, especially in light of all the talk of a possible collapse in the housing bubble, according to Mehlman.

But the thrust of the group's opposition remains their belief that it encourages illegal immigration.

A recent study by the Pew Hispanic Center found that the number of illegal immigrants coming to this country in recent year exceeds that of legal immigrants.

"The reason we have so much illegal immigration is it's easy to be an illegal immigrant in the U.S.," Mehlman said. "And these loans are one more reason why it's like that."

That movement allows illegal immigrants to use Mexican government-issued identification for obtaining driver's licenses and to pay in-state tuition at state universities, Mehlman said.

Monopoly money is worth more than a Mexican government ID.

THESE LOANS ARE A BAD, BAD IDEA.