Sunday, August 16, 2009
When immigration meets the American dream
For local immigrants seeking permanent legal status in the U.S., obtaining a home loan can be almost impossible.
SAM DEAN The Roanoke Times
Colombian natives Geovanni Ospina, his wife, Angelica Cadavid, and their daughter Isabella Ospina, pose at their rented house in Salem. The couple is ineligible to apply for home loans in the Roanoke Valley. Cadavid is a permanent U.S. resident, but Ospina still doesn't have resident status.
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It seemed like the perfect time for Angelica Cadavid and her husband, Geovanni Ospina, to become homeowners. The middle school sweethearts from Colombia recently tied the knot, they were raising two daughters in Salem, she was repairing her credit after a costly divorce in March 2008, and the first-time homebuyers tax credit was available.
"We were working hard to buy a house already and get ourselves a loan," Cadavid said.
But Cadavid, who has permanent U.S. residency, and Ospina, who still does not have resident status, were told they can't borrow. Programs that give people without Social Security numbers a chance to apply for home loans do not exist in Virginia except for the Washington, D.C., suburbs.
"This is a serious problem," Cadavid said. "But it is a problem out of my hands."
The dream of Cadavid and Ospina and thousands of other immigrants to own a home has dissolved as a result of the credit crunch, the immigration debate, a nonexistent secondary market and decline in employment in construction and landscaping.
The American dream is in theory attainable for immigrants. Banks, lenders, real estate agents and borrowers know the path as the ITIN, or individual taxpayer identification number, loan. Financial institutions are allowed to use the number as a legitimate form of identification.
In the mid-1990s, the Internal Revenue Service began issuing ITINs to foreign nationals who needed to file taxes but were not eligible to have Social Security numbers. About 12.5 million taxpayer identification numbers were assigned between 1996 and 2007.
They were meant to be used for tax payment purposes. But after the Department of Treasury changed the rules and set ITINs as a valid alternative identification form, some banks allowed customers to use these in lieu of Social Security numbers to open accounts and apply for mortgages in 2003.
ITIN and lending
ITIN loans work differently. They require larger down payments, they carry higher interest rates, and they use alternative forms to establish creditworthiness such as rental and utility payments, phone bills and money transmittals, for the lack of established lines of credit.
About 600,000 illegal immigrant households have the age characteristics to buy houses and obtain a loan with an ITIN, and about 700,000 had the income necessary to buy modest places in the United States, according to the National Association of Hispanic Real Estate Professionals.
But ITIN loans have never managed to fit into conventional banking operations.
Banco Popular, headquartered in San Juan, Puerto Rico, had a wholesale mortgage division that offered about 70 of these loans in Virginia, said Enrique Martel, a Banco Popular spokesman. The bank, considered the top ITIN provider in the United States, suspended these programs in August 2008 in all states outside of Texas citing "turbulent times" in the mortgage industry, a news release said.
"We look forward to ... returning our program on a national level once the current mortgage market stabilizes."
Citibank offers ITIN loans with the help of Acorn Housing Corp. in about 30 cities in the United States. But Bruce Dorlapen, director of counseling at Acorn, said the loans are not available in the Roanoke region because the bank offers them only in the service areas where it has branches.
Member One Federal Credit Union said it needs to verify if the customer is a resident or citizen to follow guidelines established by Fannie Mae, which purchases and securitizes mortgages from lenders.
Valley Bank is not offering ITIN loans. And HomeTown Bank operates as a broker and works with three different lenders. Joanne Polly, with the mortgage department of HomeTown, said some of the lenders offered programs for nonresident immigrants, but she would not specify which.
Edgar Ornelas, a mortgage loan consultant who caters to Latinos in the region, had previously helped an Ecuadorian couple without Social security numbers get a mortgage with Banco Popular and said it had been a long and difficult process.
Now, Ornelas' clients Cadavid and Ospina, from Salem, are consulting with him to find options to purchase a house. She works in customer service at a BB&T operations center, and he works in maintenance at the Roanoke Country Club. She does not have enough income to borrow on her own. Her credit score was affected by debt she acquired after her divorce. Living with diabetes has also been a financial burden for Cadavid.
Ornelas said he has looked for banks and credit unions that offer these loans, but either they don't or they closed. Today, he can only deal with clients who have Social Security numbers but hopes some programs come back to this region.
"It will definitely help stimulate more purchases," Ornelas said.
Well-behaved borrowers
Cindy Sanchez, a real estate agent with Dawson Ford Garbee & Co. in Lynchburg, said she sold about 50 houses with those loans in the past four years ranging in prices from $80,000 to $170,000. She said Countrywide Financial Corp. offered loans using ITINs before Bank of America acquired it last year.
"I've had people that would like to buy a house, but if you don't have a Social Security number, you can't do it right now," she said.
Sanchez said her clients made their payments.
"They know that the program is not out there. They say, 'If we lose our house, we'll never have a chance to own another one,' " she said.
But there are no numbers to verify rates of default, foreclosure or delinquency in ITIN loans.
"There is no such thing as a depository for that data that is collected and shared at a public level," said Tino Diaz, chairman and president of the National Association of Hispanic Real Estate Professionals. "Even the banks that are doing it have a tendency of not disclosing it because there is a reputation of risk."
Acorn, which works with Citibank as a portfolio lender holding the loans without selling them to investors, finds its customers trustworthy.
"What is very interesting is that the ITIN population is very reliable with their payments," Dorlapen said.
Sometimes borrowers were not only making their mortgage payment but adding a couple of extra hundred dollars to shorten the term.
"Many of them were not just putting $25, they were putting $100 or $200 and even $1,000 more," said Aggie Romero Sirrine, a real estate agent in Roanoke with ReMax First Realty.
Banco Popular's Martel said the current loans "are performing on par with the rest of the portfolio, neither worse nor better."
Lending draws backlash
The political climate of the immigration debate has made it hard for lenders who have offered ITIN loans.
Immigration overhaul protests took place in 2006 after bills aimed to toughen law enforcement methods against illegal immigrants.
In 2007, Rep. John Doolittle, R-Calif., introduced a bill that would have amended the Truth in Lending Act to make the ITIN mortgage practice illegal.
"As soon as the immigration issue became hot, there were a lot of blowbacks," said Lot Diaz, from the National Council of La Raza, a Latino advocacy organization. "Once that happened, no large institutional lender offered the loans."
He said credit and the issue of citizenship and legal residency should not be confused.
"We are in no position of judging. If there's a program that can legally extend credit for ITIN holders, and if the result of that product helps a family, it is fine," Lot Diaz said.
Rafael Morales with the National Federation of Community Development Credit Unions, said some banks and credit unions don't feel comfortable lending to ITIN holders because of all the issues around immigration.
"It is a philosophical question that every institution has to ask itself," Morales said.
A factor that may be a risk for both borrowers and lenders is the possibility of deportation.
Any individual without proper status always runs the risk of being removed to their home country, said Cori Bassett of the U.S. Immigration and Customs Enforcement in Virginia and Washington, D.C.
The number of removals during the 2008 fiscal year in Virginia and Washington was 1,958. Between October 2008 and July 2009, there have been about 1,400 people removed to their home country.
Bad timing
The tightening credit environment did not help these mortgages stay afloat.
MGIC Investment Corp., a major private mortgage insurance firm, insured these loans in the event of default or foreclosure and set its guidelines. But MGIC pulled out of that market in April 2008.
"We stopped because of the lack of demand from our customers. It was always a very small portion of our business," said Katie Monfre, MGIC spokeswoman. "It got smaller."
The Hispanic real estate association's Tino Diaz said the global credit crisis was not favorable for the young ITIN-based lending. He said the secondary market is to blame for these loans' disappearance. In November 2006, the Hispanic National Mortgage Association, nicknamed Hannie Mae, and Deutsche Bank launched a lending operation that offered liquidity to institutions that lent to nontraditional customers, including ones without Social Security numbers.
HNMA Funding Co., the joint venture between Hannie Mae and Deutsche Bank, made the purchase, securitization and sale of these loans from mortgage lenders, community banks and credit unions.
"Hannie Mae tried to package these loans, but they couldn't," Tino Diaz said. "They were trying to get inside the balloon at the same time the balloon was about to burst."
HNMA officials did not comment on the operation.
It will take a few years for Ospina to establish credit because he has to wait for a residency status adjustment to get a Social Security number. Cadavid said a last resource would be to ask her mother to co-borrow.
Meanwhile the couple rents a house in Salem and hopes for these programs to come back.
"It is one more obstacle," Cadavid said.
