Banking on illegal immigrants Banks are seeing an untapped resource in providing home loans to undocumented U.S. residents August 8, 2005: 3:39 PM EDT By Shaheen Pasha, CNN/Money staff writer NEW YORK (CNN/Money) - The banking industry is opening its doors to a controversial new market: illegal immigrants. Despite heated political debate in Washington over illegal immigration in the United States, an increasing number of banks are seeing an untapped resource for growing their own revenue stream and contend that providing undocumented residents with mortgages will help revitalize local communities. It's a win-win situation, they say. But skeptics worry about the message these home loans send to illegal immigrants: break our laws and we'll reward you with a home. "It's institutionalizing illegality," said Marti Dinerstein, president of Immigration Matters, a New York-based think tank. "Now there's no distinction being made between the people that follow all the rules and those who break our laws by entering the country or overstaying their visas." Dinerstein also worried that lack of knowledge on the part of illegal immigrants could pave the way for abuse in the form of predatory lending. But advocates of the practice say the benefits outweigh any potential downside. According to the Center for Immigration Studies, one million illegal immigrants cross the U.S. borders every year. About 500,000 illegal immigrants lose that status every year either by getting legitimate green cards or returning to their native countries. That leaves a 500,000 annual net increase of illegal immigrants – a market that has unmet banking needs. "This is a huge untapped market with people that live and work in this country and are capable of buying homes to realize the American dream," said Chan Peterson, executive vice president and head of community banking at Banco Popular, one of the earliest banks to enter this field. He added that there's a common misperception that illegal immigrants will be more likely to default on their loans than a documented resident. But the company has found that there is no higher rate of default in this loan portfolio than any other market the company serves. "There's a pride that comes with people moving from renting to owning and we've found that these borrowers are driven to hang on to their homes," Peterson said. Bill Schumer, vice president of product development at Fifth Third Mortgage Co., a unit of Fifth Third Bancorp. (Research), said the company entered the marketplace due to the belief that providing these low-to-moderate income loans will help revitalize communities in the United States, as borrowers buy more run-down properties and rebuild. He added that by introducing this segment of the population to home ownership education, they are also building a foundation to cross-sell their other products. "We've been at this program for the last 8 or 9 months and 68 percent of these borrowers have established three or more banking services with us," he said. While Schumer wasn't willing to disclose how many of mortgages the company provides, he said the product has been well received in the marketplace and is already 4 percent above the level the bank had targeted for the year. And it's growing. That's not surprising, said Alenka Grealish, manager of the banking group at Celent, an independent research and consulting firm. Grealish said while the mortgage banking business in the U.S. continues to be red hot, veterans know that it's a highly cyclical industry that moves with interest rate trends. She said that forward-looking banks are already considering how to grow their business when the pipeline of traditional mortgages begins to dry up. "Illegal immigrants are here to stay and banks are recognizing that," she said. "If you do a niche market well and know how to price it, banks can have some attractive margins." She added that while criticism is rampant, banks are careful to follow guidelines that the government already has in place. Case in point: the government's issuance of individual taxpayer identification numbers, or ITINs. ITINs are a nine-digit tax processing number issued by the Internal Revenue Service to individuals who are required to have a U.S. taxpayer identification number but who don't have, and aren't eligible to obtain, a social security number. Since the IRS doesn't require legal residency to obtain an ITIN, many illegal immigrants use this form of identification to pay U.S. taxes and buy homes. "Illegal immigrants are a huge gray area and it becomes even more gray when you start issuing ITINs," Grealish said. "There's complicity already within the government in which they're saying that they're kind of fine with these people here as long as they pay their taxes." The IRS for its part says that ITINs aren't valid for identification purposes outside of the tax system. But there are no explicit rules banning the use of ITINs in obtaining mortgages. Banco Popular's Peterson added that it would be discriminatory to deny a loan based on an ITIN. For now, community banks are leading the charge when it comes to providing home loans for illegal immigrants. Banking experts say that community banks often have the bilingual capabilities and are more in tune with local community needs and markets. And larger banks are holding out for secondary markets such as Fannie Mae or Freddie Mac to agree to buy illegal immigrant mortgages from the banks – thus lowering their risk. Bank of America (Research), which accepts ITINs to open interest-bearing deposit accounts, currently isn't offering a mortgage product to this market but the banking giant is looking into it, said spokeswoman Julie Davis. "Banks are counting on the fact that we do a lousy job with interior enforcement," said Celent's Grealish. "Once you're in the country and you haven't done anything wrong, the chances of being deported are very slim. Banks are banking on that."
I don't see the problem. You don't even have to be in the country to buy property and get a mortgage here. I don't see what their immigration status should matter. If they get deported, they will still own the house, and they will still have to pay their mortgage. I think there is a concern about predatory lending, but the availability of mortgages from mainstream banks likely cuts out some of the danger of back-alley funding that would otherwise take their place.
From the outside looking in Beyond the Legal aspect Is there *any* reason for a immagrant to come in the Legal way as oppose to the illegal way? The illegal way seems much less hassle free. [beyond, of course, the actual GETTING here] Rocket RIver
Coming here the legal way means you won't be deported. You can be more assertive when asking for your rights from employers, landlords, etc. It can eventually lead to voting and citizenship.
Do you ever want a better job? A bank account, perhaps? Want to not worry about deportation? The possibility to get some good health insurance? The opportunity to invest your money down the line? To think anyone would prefer being illegal to legal is absurd.
Except if you'd be in line for years (or forever) doing the legal way, where as you can be here tomorrow illegally. Plus it's not like we are enforcing the law anyway.
Oh I agree there are reasons to go the illegal route. If your choices are wasting your life away waiting to get in or getting in but having limited opportunities, you may very well choose the latter. But to say that there are no reasons to people would prefer to be legal is absurd.
Not enforcing the law? It is enforced all the time. Hundreds of thousands of people are deported every year. I'm sure they feel like the law is being enforced.
For a large amount of illegal immigrants, being illegal here is better than any other option. My cousin makes $30 USD per month in China. My uncle had to wait 10 years before his application would get looked at. My family had to wait 12 years. It is very very hard to move here legally. BTW, don't you consider buying a house to be an investment? =)
Are you serious? They are talking about giving illegals drivers licenses here, I'd call that not enforcing the law.
What they are talking about doing at some future point doesn't address the fact that currently hundreds of thousands of illegal immigrants are deported every year.
According to this article, they deported 200,000 illegals in 2005. It is considered a record banner year for deportations. There are approximately 12 million illegals in the country, so you're looking at about 1.67 percentof illegals who get caught and deported. http://www.govexec.com/dailyfed/0406/041406nj2.htm
Ok, so they are deporting, and enforcing the law. It obviously is only a very low percentage, but it isn't like they are doing nothing.
As I stated coming in illegally seems to be less of a hassle and more and more . . it is becoming easier to become Legal *after* being illegal .. than simply waiting your turn and doing it the 'right' way come here. . . Be illegal for 5 yrs. . then move toward legality versus waiting 12 yrs to do it the right way Rocket River
LOL, so we are at 1.67%, hence they are not "really" enforcing the law. It's not like they don't know where to look to enforce the law.
I think they need to reform the 'legal' way as rocket river said. It's ridiculous that it's easier for a 5 year illegal to get legal status than it is for someone who waits outside the country and has to wait 10+ years. I don't know what the current immigration procedures are. I do know they used to have a quota system for certain regions of the world. Any ideas for reforms?
Kinky's plan: http://www.kinkyfriedman.com/issues/faq.html The idea is that the temporary work visa process would change to basically a registration process with no limit on the numbers. The applicant would pay for the background check, and if they pass, they are given a temporary work visa. They still have to "wait in line" for permanent resident status, but they can work here in the interim.
I agree 100% on reforming the the procedure for immigrant to come here legally. I kind of like Kinky's plan that Weslinder mentioned, and I think that we need to look at the bureacracy involved in the Green Card process. Either greatly reduce it or get more people working on it in order to have a better, and quicker procedure. I honestly haven't looked that much at the specifics on this issue. I will happily listen to others ideas.
under this current administration, congress, and senate.... it looks to be heading towards voting and citizenship for the illegals as well. good question RR. i do agree with JuanValdez though... if the banks want to risk losing money if and when the illegals get deported so be it. at least this will eliminate the back alley deals.
It is win-win. They live here and if we don't want to spend tens of billions to ship all of them out and tens of billions more to build a flashy and useless wall, then we might as well help them revitalize the places they live. Plus, no one is safer with people carrying wads of cash or hiding it under their matresses. It also puts them on record to pay taxes.
