July 08, 2005
Housing loans

Today's Wall Street Journal has an article about the increasing number of mortgages granted to illegal aliens. I guess I've just been out of touch, because this completely surprised me. The piece notes that the Wisconsin Housing and Economic Development Authority is financing loans there. I can understand the negative reaction from some legislators - a state agency knowingly aiding lawbreakers is pretty odd - but I can also see the benefits of increasing rates of homeownership.

If you don't have a WSJ subscription but want to read the article, drop me an email at helliemae at gmail dot com, and I'll email you the access link.

Posted by Ellen Forman on July 08, 2005 to National news | TrackBack

Many loans are structured to maximize profit on default, not maturity.

Posted by: Charles Hixon on July 8, 2005 1:02 PM

I work for WHEDA as the SysAdmin, so I have some stake:

We are not a state agency, though the WSJ referred to us as such. We accept no WI tax dollars, but instead issue our own bonds. We are an HFA, however, for the state of Wisconsin, so we do the things all Federal HFAs do, but we're one of the few that isn't part of the state's government. (though the executive director is appointed by the governor, and legislators serve on our board.)

That being said, this was unpopular when it was announced. Many legislators screamed, the radio was full of yahoos who had no idea what this was for, saying we were promoting illegal immigration, that these people weren't paying any taxes, so why should they get services, etc. But that's what the ITIN is for, so the governments can get taxes these folks' income.

The majority of the 112 loans WHEDA has guaranteed are to legal resident aliens who are not citizens. Of the rest, it fits in WHEDA's mission of revitalizing poor urban areas and providing housing to low-income families.

Posted by: Rich on July 8, 2005 2:22 PM

It's hard to beleive they can do it. When we were house-shopping, I was told again and again how we had to wait til I had permananent residence, which I then waited for and got. I should have learned how hollow this was when the paperwork the filled out got my citizenship wrong anyway and mistated my wife's education by 6 years.

Posted by: Jerry on July 8, 2005 4:21 PM

Thanks for your clarification on that, Rich.

Did you see today's Journal-Sentinel article? When I read it, I was appalled by Rep. Kestell's lack of insight. Sadly, the issue for our Hispanic communities is much larger than the problems they face establishing banking and mortgage relationships. The ITINs they must have to get jobs are used to pay income taxes; however, the Social Security Administration does not recognize them as valid payer identification numbers. So any money at all these hard working individuals pay in Social Security taxes are lost to them--and to any others who have legitimate claim to Social Security benefits. That bears repeating. Every cent that gets paid to SSA from individuals who use and ITIN instead of an SSN are dumped into a bucket. Where it goes from there, no one will say. But what the SSA has said is that, when it comes time for immigrant workers to collect Social Security benefits, there will be no record of payments made under ITINs. It makes me sick.

Perhaps, as Rep. Kestell said, with the media coverage and draft legislation, enough Wisconsinites will become aware of the issue that legislators will resolve the problem. My hope is that everyone who becomes aware of this will be as angry as I am about it.

Thanks for the opportunity to share.

Posted by: Laureen on July 13, 2005 5:51 PM

Here's the testimony from Antonio Riley, the director of WHEDA, against the legislation that would make this illegal. Unfortunately I can't link it, as it's an internal document. As you can guess, we do want Kestell's bill to fail. Though I will admit, there probably is some profit motive for some banks to be doing this lending. We, however, are a not-for-profit that has to roll all of our monies back into our debt financing, and into new products to fulfill our mission.







Thank you for the opportunity to testify on behalf of the proposed State Senate Bill 43 and State Assembly Bill 85. Unfortunately, I am unavailable to attend in person today due to a previously scheduled event. I have asked Chris Gunst from the Executive Office at WHEDA to present my testimony and answer your questions regarding this proposed legislation.

This bill prohibits WHEDA from offering HOME mortgage loans to individuals with an Individual Taxpayer Identification Number (ITIN) issued by the IRS. The WHEDA HOME program provides low interest rate loans for low- to moderate-income first time homebuyers.

I will briefly describe how Senate Bill 43 and Assembly Bill 85, if passed, will prevent WHEDA from achieving its mission of increasing homeownership in Wisconsin.

First, I will define what an ITIN number is and why it is important to working immigrants who contribute to our economy.

ITIN stands for Individual Taxpayer Identification Number. It is a substitute for a Social Security number provided by the IRS, so immigrant workers can pay taxes. It’s an accepted form of ID. ITINs are a financial indicator of working income. Immigrants need to report income but are not eligible for Social Security numbers.

The IRS recognized this and created ITIN numbers in 1996 when it discovered that immigrant workers had a reported $80 billion in annual income. ITIN enabled these workers to properly report their earnings and pay federal taxes.

The USA PATRIOT Act (Section 326 –Customer Identification Program) requires financial institutions to establish a customer identification program for all new accounts, regardless of whether the customer is a US citizen or foreign national, to form a reasonable belief as to the identity of customers. ITINs are specifically listed as a form of identification that banks can use.

Furthermore – and let me stress this – ITINs are, under the law, not to be taken as an indicator of the carrier’s legal status as an immigrant. WHEDA and other financial institutions cannot ask for this information, nor will the IRS divulge it.

In considering this measure, I suggest that we all be careful about throwing around labels like "illegal immigrant." When immigrants become documented, they become part of the system. ITIN is documentation. Many ITIN holders are not only in this country legally, they are often on a sure but slow path toward citizenship.

Next, I’d like to comment on how immigrant populations are increasing.

The face of our nation and our state has changed rapidly in the last 10 years.

· According to the federal Immigration and Naturalization Service, about 1.1 million people immigrate to the United States each year.

· Over the past decade, immigrants accounted for half of the new wage earners entering the labor force.

· There are more Latinos in the US than there are Canadians in Canada. By the year 2020 one in five US residents will be Latino.

· From 1990 to 2000, Wisconsin’s Latino population increased by 107%, more than any other ethnic group.

While Latinos constitute the state’s fastest growing ethnic group, our state is also becoming more culturally diverse as a result of other immigration. For example, hundreds of Somalians from Africa now live and work in Barron County. Thousands of Hmong immigrants from Laos now seek to make a better life in Wausau, Milwaukee and other Wisconsin cities.

As a housing authority, WHEDA is expected to recognize Wisconsin’s population shift and identify emerging markets, such as immigrant populations that are being underserved in the private sector.

As a result of Wisconsin’s changing population and an understanding of ITIN, WHEDA began a Pilot Immigrant Lending Program in April, 2004.

The program now involves several Milwaukee, Madison, Appleton, and Racine area banks.

WHEDA partnering banks write the loans and WHEDA finances them. The ITIN program follows the same general guidelines as all home mortgages financed by WHEDA. These are 30-year, fixed-rate, below-market loans, as are all WHEDA HOME loans.

Since its inception, we have funded 61 loans with ITIN numbers. To put this in perspective, WHEDA funded about 4,100 mortgages, totaling $407.1 million statewide in 2004. Lending to working immigrants is a small yet emerging part of our business.

The WHEDA Immigrant Lending Program has generated some misconceptions in the public eye. I’d like to dispel those misconceptions today.

The first misconception is that WHEDA’s ITIN program is luring new immigrants to the US and Wisconsin.

Many immigrants have for years lived among us as respectable residents. Many of them also are well along the difficult, years-long process of establishing themselves professionally and financially in order to become US citizens. Indeed, many of them have children, who were born in the US and thus are automatically US citizens.

As with any mortgage application, an ITIN-equipped borrower must demonstrate a steady work history and regular income, which means the applicant has had to live in Wisconsin for several years or more. Sensationalist TV newscasts showing Latinos slipping across the US-Mexican border ignore the truth that ITIN borrowers must be well-established residents in our state.

National immigration policy is for Washington to decide. In the meantime, and even after federal immigration laws are changed, we will continue to face the practical challenge of ensuring decent, sanitary, safe and affordable housing for residents of our state. We are not immigration law experts. We are housing experts, and we say everyone deserves a dry roof over their head.

WHEDA’s ITIN program denies citizens access to a WHEDA Home Loan.

This is simply not true. WHEDA uses no state tax dollars for its housing programs. By issuing tax-exempt revenue bonds WHEDA is able to fund below-market-rate mortgage loans. We have a bountiful supply of bonding authority for our HOME program – the more loans we fund, the more bonds we will issue to cover the financing. WHEDA’s immigrant lending program does not carve a slice out of our general mortgage finance program, it adds a new slice.

In addition, WHEDA’s ITIN program is fair because mortgage terms to qualifying citizens and ITIN holders are identical. Nor is any qualifying Wisconsin citizen being denied a WHEDA-backed home mortgage in favor of this program.

ITIN borrowers must have financial resources and good credit. They must repay their loans on a timely basis or lose their house, just like any borrower. In short, they must have well-established roots in the community where they want to own a home and they must have comparable financial qualifications.

Mortgage lending to immigrants is a new concept in the banking industry.

Lending to undocumented residents is nothing new. For the past five years, M & I and Second Federal, a Midwest-based bank, have been lending to ITIN-enabled borrowers. And, in December 2003, 35 banks in the Chicago area joined with the Federal Deposit Insurance Corporation to start making mortgages available to borrowers with ITIN numbers.

WHEDA has a waiting list of banks and other private lenders that wish to participate in the ITIN program and that have been doing this type of lending on their own for years.

If lending institutions are already doing ITIN loans, why did they ask that WHEDA partner with them in this effort? Because the only type of loans they have been able to offer without WHEDA’s help are adjustable rate mortgages and balloon payments with higher interest rates. WHEDA’s HOME mortgage offers a below-market interest rate that is fixed for 30 years. This is the most affordable mortgage on the market for immigrant workers buying their first home.

ITIN Loans are high risk and bad business for communities.

WHEDA does not believe that to be the case, whatsoever. In the first place, all our loans are insured. MGIC, the Milwaukee-based firm which is one of our mortgage insurers and the largest mortgage insurer in the nation, believes in this program, insures our ITIN mortgages and has taken a parallel approach to WHEDA’s efforts nationally. MGIC sees that ITIN lending is good business, and they should know.

ITIN-involved financial institutions in Wisconsin and elsewhere say that these loans have, in fact, performed very well. WHEDA’s own experience to-date with ITIN loans suggests likewise.

Benefits of the ITIN program include increasing homeownership, including a new generation of property taxpayers, greater urban neighborhood stability, and more dollars that tend to stay in the community. Immigrant workers pump tens of billions of dollars back into the US economy by making direct purchases and paying taxes.

Because of the perception of risk, some immigrant workers continue to fall prey to predatory lending. They might pay thousands of dollars in closing costs alone, plus very high interest rates.

An ACORN study published in 2004, noted that Latinos in Madison had the highest rejection rate for loans not in Wisconsin but in the nation. This study communicates that predatory and subprime lending happens to individuals of all races but is more prevalent among immigrant and minority populations.

Without WHEDA’s leadership in this emerging market, the predatory lending problem is likely to worsen. That would be to the detriment not only of these hard-working residents of Wisconsin, but also to the community at large.

We have two choices: We can look the other way or we can do something to help people who live in our communities, who work in our communities, who support our communities and who are long-standing members of our communities.

After arriving in our country, some undocumented immigrants enlist in the US Armed Forces. They do it because they appreciate the United States, want to make a life here and know that serving in the military will be a plus in helping them advance toward citizenship. I wonder how many Americans know that more than two percent of our uniformed men and women are not US citizens. Yet some of these resident immigrants have died defending our country’s freedom.

The irony is that this pair of bills would prevent us from offering loans to anyone without a Social Security number irrespective of financial eligibility. We already have turned down some ITIN-equipped applicants, but only on the basis of the financial and other requirements we apply to all our borrowers, even those with Social Security numbers.

The point I'm making is that these are not political decisions, these are financial decisions, and informed decisions -- as bank loans should always be and often are. The WHEDA ITIN program rewards hard work with equal opportunity. Applicants get nothing special and nothing for free. They need to have a down payment. They need to show the ability to make their monthly mortgage payment consistently, and on time.

Immigrant workers are an essential component to our local, state and national economy. For them or any other foreigner, buying a house in this country is not an illegal activity; it's an investment, one that we all want to see happen more often.

I hope and expect that legislators understand that this small but important WHEDA program is not about handouts. It's about strengthening our communities by providing an equal opportunity for homeownership with respect, dignity and fairness, regardless of race, creed or nationality.

Thank you for providing the opportunity to testify this afternoon. I will be happy to answer any questions you may have.

Posted by: Rich on July 15, 2005 11:30 AM

Mr. Riley's responses don't surprise me one bit. He's one of the most intelligent, enlightened and capable nfp directors I've ever had the privilege to encounter. It's a shame that our representatives don't demonstrate the same level of dedication to their constituents--all of their constituents. It's also a shame that fear- and hate-mongering continues in Washington, and just a little more than half of America buys into it. What a sad state of affairs, that those of us who have so much can't be troubled to support those in our communities who are by policy left in the cold. I'm glad that at least some lenders (even if somewhat self-serving in the endeavor) have seen fit to address this important need in the communities they serve. Food for thought--how can we go about making Washington accountable for the millions of dollars paid in to Social Security "off the books" under ITINs?

Posted by: Laureen on July 17, 2005 3:45 PM

I am a trained ITIN lender for the WHEDA program. I believe that shelter is a basic need and should not be tied to whether an individual possesses a social security number or a Green Card. The clients I have served under the ITIN program have been required to pay a higher percentage in downpayment than have my WHEDA Program clients with a social security number. Further these loans are more closely scruntinzed, require far more documentation and are more time-consuming to process than loans made to US Citizens and Permanent Resident Aliens. Participating lenders under the WHEDA ITIN Program are basically doing pro bono work; profit is not a consideration. I'm back to the premise that shelter is a basic need for all human beings. Thanks for taking the time to read my thoughts on this.

Posted by: Betsy Wilcox on August 1, 2005 5:47 PM