Mortgage Prospects Dim for Illegal Immigrants

Jose Luis Hernandez rose from vegetable chopper to sous chef at an exclusive New York restaurant -- and saved $100,000 along the way. Recently, the illegal immigrant from Mexico contacted real-estate agents in Brooklyn, N.Y., where he currently rents an apartment.

"I wanted to use my money as a down payment on a house," says Mr. Hernandez, 32 years old. In doing so, he sought to join thousands of undocumented workers who in recent years have purchased homes using an Individual Taxpayer Identification Number, or ITIN, instead of a Social Security number. The Internal Revenue Service doesn't give Social Security numbers to illegal immigrants; it issues ITINs, which enable them to open bank accounts and report their income to the government for tax purposes.

But Mr. Hernandez quickly learned that things have changed. He says he was told that, "unfortunately, if you don't have a Social Security number, you cannot buy property."

Dubbed ITIN mortgages, the loans that made homeownership a reality for thousands of undocumented workers have withered -- although not because they underperformed.

The loan program highlights contradictions in U.S. polices toward illegal immigrants. Even as the Department of Homeland Security sought to deport them, the Federal Deposit Insurance Corp. goaded banks and credit unions to bring undocumented immigrants into mainstream banking if they could prove they had steady income and were creditworthy. Beginning in 2003, when banks and credit unions first offered mortgages to undocumented immigrants, the small segment blossomed. The mortgages performed better than some others, partly because of stringent lending criteria and because they usually had fixed rates over a period of time.

But amid the crackdown on illegal immigration and the economic slowdown, the market for immigrants who boast the alternative nine-digit taxpayer ID is dying.

"If you want to buy a house and you're here without papers, now you can forget it," says Jesus Benitez, a real-estate agent who caters to Hispanics in Brooklyn.

Lenders first began to retreat last year during the debate over illegal immigration. Many institutions received a barrage of attacks from clients who opposed the ITIN-mortgage scheme.

"I got hate mail, including death threats, from people hostile to immigrant lending," says Tim Sandos, who worked at Citigroup when that institution began underwriting ITIN mortgages for first-time, low-income buyers in a partnership with the housing arm of the Association of Community Organizations for Reform Now, or Acorn. Mr. Sandos is president of the National Association of Hispanic Real Estate Professionals.

The environment worsened after the defeat in Congress last spring of an immigration bill, sponsored by Sens. John McCain (R., Ariz.) and Ted Kennedy (D., Mass.), which was designed to put undocumented workers on the path to legalization. Amid calls for a crackdown, the Bush Administration began raiding workplaces believed to employ illegal immigrants.

Bank of Bartlett, a small bank that serves the greater Memphis area, endured the "political heat," says John Byrd, president of Bartlett Mortgages, a unit of the Tennessee bank. "We felt we were doing the right thing; these people had been working here many years and paying taxes." All told, the small bank originated about $20 million in ITIN mortgages over four years, each worth about $100,000.

Less than 5% of Bank of Bartlett's ITIN loans are delinquent. Nationally, for loans more than 90 days in arrears, ITIN mortgages had a delinquency rate of about 0.5% last year, compared with 9.3% for subprime mortgages, according to independent estimates. But the meltdown of the mortgage market and the ensuing financial crisis, have delivered a final death knell to the segment.

"If the market closed for plain-vanilla loans, it is now more than closed for loans that fall outside the traditional mortgage pattern," says Leonardo Simpser, chief executive of the Hispanic National Mortgage Association, a private-investment company in San Diego that underwrote several hundred million dollars in ITIN home loans.

Late last year, Mortgage Guarantee Insurance Corp. pulled the plug on insurance for the loans. "Between the marketing efforts, risk management and underwriting, the volume from a cost-benefit perspective did not warrant continuing," said Mike Zimmerman, senior vice president for investor relations.

Unwilling to shoulder the risk alone, Bank of Bartlett and others began withdrawing from the ITIN home-loan market -- though they continue to service their current clients.

Meanwhile, Mr. Hernandez says he has no choice but to leave his cash in money-market and savings accounts in two banks. "I have a lot of money but I cannot invest it...," he says. "It's frustrating."