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A Strange Tale With A Twist
Sometimes a risky transaction is not what it seems
- by Carol Lloyd, special to SF Gate
Friday, October 28, 2005

Weirdness abounds in real estate, but sometimes a transaction is so peculiar that even after the deal goes through it continues to haunt you. Such was the case for Jessica Newman (not her real name) after she and her husband sold their three-bedroom, two-bathroom house on Redwood Drive in Concord.

It all began when the couple accepted a backup offer that made them uneasy, though it was well over the asking price of $530,000. The buyer planned on getting a zero-percent-down loan and was paying several points for the privilege. In exchange for the higher offer price, the sellers would pay $8,000 of the closing costs. These details suggested that the buyers weren't exactly rolling in dough.

Still, Newman and her husband were eager to move. Their home had recently been broken into and they simply wanted out.

"Our real estate agent said a bird in the hand is worth two in the bush," she recalled. "And the buyer had a pre-approval letter, so we weren't really worried."

Toward the end of the 63-day escrow on the Concord house, their real estate agent learned that the loan documents had not yet arrived. It seemed that the buyer, a young, non-English-speaking Latina, didn't have a valid Social Security number and so the lender would not qualify her. The buyer's agent offered to put the buyer's boyfriend on the contract instead, but Newman rejected that idea when the agent admitted he couldn't guarantee that the boyfriend would have a valid Social Security number either.

At that point, the buyer's translator -- a man who Newman had assumed was a neutral party hired by the real estate agent -- offered to cosign on the contract. Newman and her husband met with the buyer and her boyfriend -- a very young couple with two children -- and the translator, who then identified himself as a representative of the mortgage company.

After delaying the close of escrow several times (in turn delaying escrow on the new house the Newmans were buying in Walnut Creek, forcing them to pay extra to the seller to keep him happy and to pay a fee to their lender to keep the terms of their loan -- for a total cost of about $5,000), the sale finally went through, with the buyers paying an extra $1,000 for the delay.


But Newman continued to think about the peculiarity of the deal and her suspicion that the young buyers had somehow become a foil for a larger racket. How could this couple afford a $546,000 home? Why was the woman pre-approved without a Social Security number?

Despite my expertise in parsing bizarre real estate stories, I too found Newman's experience mystifying. If it was a scam, it sure didn't seem like a very good way to make a buck. In fact, it seemed like a good way to lose a lot of bucks.


There have been cases of mortgage fraud in which brokerage houses lure dozens of undocumented immigrants into buying homes they cannot afford in order to close deals, thereby defrauding the lenders. But that wasn't the case here, since the mortgage company had been on the verge of pulling the loan altogether.

What was going on here?

I called Pro Capital Mortgage, the brokerage house that had handled the loan, and asked them. Why would an employee of their company be willing to cosign for buyers with little money and no Social Security number -- probably an indicator of their undocumented status?

"Oh, they were part of his family," explained Nancy Keyghobadi, office manager and one of its owners. "He stepped in and saved the day. It was really nice of him."

It seems that the translator was a young agent who had gone "farming" for clients among his own community and family, a regular practice among mortgage brokers and real estate agents. When it turned out that the young woman was using an invalid Social Security number, he saved face and saved the loan by offering to be a cosigner.

Nancy Keyghobadi was less happy with the young woman who had initially presented herself as a buyer in good standing.


"If people are not straight with us, if people are using an illegal number, we have every right to pull the loan." Keyghobadi said that her company deals with a lot of low-income and immigrant Latino communities and that such last-minute changes are not terribly unusual. When things go awry, there is often a cosigner who appears out of the woodwork to help the deal go through.

"They help each other," she said. "More than any culture I've ever seen, they're willing to cosign for each other, even among friends."

So Newman and her husband had not stumbled onto some underground mortgage cabal. But they had collided headlong with a growing sector of the housing market. The homeowner who would never have been a candidate for ownership in the past is now a major player in many "starter home" markets.


In an era when home prices have soared, the loan market has been hard at work creating "innovative products" that allow increasing numbers of low-income individuals to mortgage their future to the hilt and buy their little slice of the American dream.

Some lenders -- not those which Pro Capital Mortgage uses, since the lender was prepared to pull its loan offer without a valid Social Security number -- have even begun marketing specifically to undocumented residents, provided that they can show proof of identity with a federal Income Tax Identification Number, two years of stable employment and good credit.

"I wouldn't say it's a big enough niche to constitute a trend," said Mary Mancera, of the National Association of Hispanic Real Estate Professionals, "but it is happening."

She cited several recent programs in the mortgage market that are openly appealing to undocumented and documented immigrants. (Although some anti-immigration conservatives have pledged to change the laws, there are no federal or state restrictions on lending money to undocumented immigrants.)


Banco Popular North America in New York has offered home loans based on an ITIN, and New South Federal Savings Bank in Alabama has a similar program. The Mortgage Guarantee Insurance Corporation recently completed a test program of 1,200 to 1,500 of these loans. After two years, Mancera said, there have only been two defaults.

She said Latinos in particular have an attitude that makes owning a home an especially high priority. "Homeownership has a personal meaning for Latinos. It's not perceived as an investment -- it's about hearth and home. So buyers tend to take a very long view."

And with immigrant populations growing, it's not surprising that many professionals in the real estate market have begun to calculate how this can translate into profits.


"Everyone in the housing industry is seeing the absolute potential for this in terms of the number of immigrants," said Mancera, explaining that they anticipate a change toward a more pragmatic immigration policy. In a 2004 study, the National Association of Hispanic Real Estate Professionals estimated that if all undocumented renter households bought affordable homes, they would add $44 billion in new mortgages to the U.S. housing market.

Indeed, the population of immigrant first-time home buyers is so large it may even help the housing market absorb the potential shock waves if interest rates continue to rise as most economists expect. With this financial momentum and the fact that immigrants are three times as likely as other adults to rank home buying as their top priority, it could be only a matter of time before a seemingly risky real estate transaction is business as usual.