Lenders import ways to extend mortgages to immigrants

Countrywide and other companies, such as credit scoring titan Fair Isaac Corp., are creating ways to augment meager credit histories with records of utility payments, rent and even money sent to families abroad. They are finding ways to confirm cash income from services such as child care and landscaping.

ITIN loans
Rent paid by long-term boarders is counted as income. Down-payment money from multiple sources is allowed. This last item is important for immigrant extended families.

Most mortgages are for people who can document that they are in this country legally. A few lenders are experimenting with providing home loans to people who have no such documentation. They are called ITIN loans because borrowers use individual taxpayer identification numbers (ITINs). These numbers are provided by the Internal Revenue Service to people who aren't eligible for Social Security numbers, but who pay federal income taxes.

A typical ITIN customer is a Mexican immigrant who has lived in the United States for a few years, says David Motley, executive vice president of Fort Worth-based Colonial National Mortgage, which has underwritten a few of the loans.

Colonial is still developing the loan program, which allows the use of nontraditional credit and recognizes cash income. The mortgages are risky because the borrowers are subject to deportation and the loans can't be sold in the secondary market. So they have higher interest rates -- anywhere from half a percentage point to 4 percentage points higher than for a standard, fully documented fixed-rate mortgage. The loans require substantial down payments. "That's kind of our hedge against that deportation risk," Motley says.

Motley is aware that mortgages to undocumented immigrants can arouse indignation among native-born Americans. "My experience is these folks want to work, want to work hard," he says. "These folks who sign up for an ITIN pay their taxes, they go to work, they take care of their families. They're an important part of the economy. Since they're paying rent on time and taxes and other bills, why not a mortgage payment?"

Homeownership training
The program requires borrowers to undergo training in homeownership and budgeting, and they have to have bank accounts, says Gloria Barreto, a Colonial loan officer in Dallas. She says some borrowers have misconceptions about the American banking system.

"Sometimes they think they have to stay in the house for 30 years, until they pay the mortgage off," she says. "I say, 'No, you can refinance or sell it.' A lot of times they don't understand about closing costs. I think in Mexico the seller holds the deed until it's paid for. I do a lot of education as far as the role of the title company and how the transaction works and how the parties get paid."

Undocumented Hispanic immigrants would take out an estimated $44 billion in mortgages if barriers to borrowing were lifted, according to the National Association of Hispanic Real Estate Professionals. The size of the market has captured the attention of nonlenders. Mortgage Guaranty Insurance Corp. offers private mortgage insurance to undocumented immigrants. Ameridream, a down-payment-assistance program, accepts ITINs. "It's another way for us to help people overcome obstacles to achieve homeownership," Ameridream president Ann Ashburn says.

The biggest mortgage lenders are staying away from loans to undocumented immigrants and instead are chasing after Hispanics and Asians who have come to the United States legally.

"We are a work in progress. We have historically been a plain-vanilla kind of lender," says Fran Clemens, senior vice president of emerging markets for ABN AMRO Mortgage Group. But this summer, the Netherlands-based lender plans to introduce DreamFirst, "which will be affordable-type loan products geared for outreach toward the underserved," Clemens says.

DreamFirst will share some similarities with Countrywide's Optimum, focusing on borrowers with nontraditional credit and seasonal or cash-paying jobs.

Saenz, of Countrywide, believes that a self-perpetuating cycle is begun when immigrants and minorities get mortgages.

"It's incredible when people get into their first home," he says. "They not only bring their family to a new level, but the extended family is going to benefit because they're going to come and say, 'How did you get a home?' The best advertising comes from people who are homeowners."