U.S. Border Control

Banks are writing home mortgages for illegals, see them as an “untapped resource” for profits

August 8, 2005

Despite heated political debate in Washington over illegal immigration in the United States, an increasing number of banks are seeing illegal aliens as an untapped resource for growing their own revenue stream.

The banks contend that providing undocumented residents with mortgages will help revitalize local communities, calling it a win-win situation.

Others, however, worry about the message the 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. '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.'

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. Half of them lose that status every year either by getting legitimate green cards or returning to their native countries. That leaves a 500,000 net increase of illegal immigrants each year – a market that banks see as having unmet 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 to write mortgages for illegals, said 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.

“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, said the mortgages are already 4 percent above the level the bank had targeted for the year. And growing.

One banking analyst said 'Illegal immigrants are here to stay and banks are recognizing that. If you do a niche market well and know how to price it, banks can have some attractive margins.'

She did add that criticism is rampant, but that banks are careful to follow guidelines that the government already has in place.

Rather than Social Security numbers, mortgages for illegal aliens use government – issued individual taxpayer identification numbers, or ITINs.

ITINs are tax processing numbers 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. The IRS doesn't require legal residency to obtain an ITIN, so illegal immigrants use the numbers to pay U.S. taxes and now to buy homes.

'Illegal immigrants are a huge gray area and it becomes even more gray when you start issuing ITINs,' the analyst 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 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.

Community banks are leading the charge when it comes to giving home loans to 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.

'Banks are counting on the fact that we do a lousy job with interior enforcement,' said the analyst. '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.'