Despite Illegal Status, Buyers Get Home Loans
LA Times | August 9, 2005
By Anna Gorman
Each week, Pedro Morlet knocks on doors in the Bay Area, looking for illegal immigrants.
Morlet isn't an immigration agent. He's a real estate agent, and he's scouting for business.
"Do you want a house, work and pay taxes but don't have a Social Security number?" reads his flier, written in Spanish and tailored to his potential customers. "We can help you LEGALLY!"
Across the country, particularly in Texas and parts of the Midwest, hundreds of illegal immigrants have bought homes using special lending programs that bypass the need for a Social Security number. Now, with backing from some of the country's largest financial institutions, this newest effort to tap customers for the real estate market is moving to the nation's largest concentration of illegal immigrants — California.
As buyers begin to queue up, real estate is becoming the latest arena to highlight the often-bizarre contradictions of American immigration policy.
Advocates of tighter controls on immigration oppose the idea of illegal residents buying homes here. Lending money to illegal immigrants encourages others to cross the border, they say.
"They have no right to own property in the United States because they have no right to be here in the first place," said Diana Hull, president of Californians for Population Stabilization.
Legally, that's not quite true. Unlike some countries — Mexico, for example — the United States generally does not restrict foreign citizens from buying real estate.
But for years, because qualifying for a mortgage required a Social Security number, the only way for an illegal immigrant to do so was by using a false number. In addition, such immigrants often were rejected or overlooked by legitimate lenders, leaving them vulnerable to fraud.
Lenders have a powerful incentive to find ways to get around those barriers: tens of thousands of potential customers. The National Assn. of Hispanic Real Estate Professionals estimates that more than 216,000 undocumented immigrants, including many who have been in the country for decades, could buy homes if they had better access to the market.
Despite their undocumented status, many prospective buyers earn steady incomes, face little risk of deportation and are desperate to become homeowners. Their purchases would amount to millions of dollars in mortgages.
"You have gainfully employed people who have been stuffing money in the mattress for a long time," said Mary Mancera, spokeswoman for the association. "There are quite a few who have been working and saving money and raising kids and going about their lives and want to achieve that next step, but haven't been able to because of the barriers."
Silvia Avalos, a hairstylist, and her husband, Jose Luis Avalos, a busboy, are among the people Mancera is talking about. They were tired of spending their money on rent each month but didn't want to use fake Social Security numbers to buy a home.
After friends told them they could buy legally, they found a two-bedroom condo northeast of San Francisco for $280,000. They moved in as soon as escrow closed.
"We saw it as an investment," Silvia Avalos said. "While you are here, you have somewhere to live that is yours. And if you return home [to Mexico], you can sell it."
Another prospective buyer, Aaron Sanchez, was pre-approved for a $200,000 loan after taking a class sponsored by ACORN, an advocacy group for the poor, on how to make offers and apply for mortgages. The 32-year-old illegal immigrant from Oaxaca, Mexico, has worked at the same furniture company in the San Gabriel Valley for 14 years. He wants each of his two children to have a room. It is a luxury, he knows, that will be hard to afford.
"I think I can find a house," Sanchez said, "but a small house."
The opportunity to get people like the Avalos and Sanchez families into the market begins with the IRS, which is happy to collect peoples' taxes, regardless of their immigration status.
Nearly a decade ago, the IRS began giving out Individual Taxpayer Identification Numbers so people without Social Security numbers could pay taxes. Since then, more than 8 million applicants have received numbers, and about 2 million are used annually on tax returns.
The IRS knows illegal immigrants are using the numbers to get mortgages.
"We don't have control over whatever the taxpayers do with the numbers other than filing a tax return," spokeswoman Irma Treviño said.
In addition to the ID numbers, immigrants must show that they have been in the country, worked and paid taxes for at least two years in order to get mortgages. Because many do not have credit scores, they must prove their good credit through such documents as utility and cellphone bills, rent receipts, bank statements and paychecks. The interest rates and loan costs are in line with those of buyers who have Social Security numbers.
So far, the trend has begun slowly in California: Only about 50 houses and condominiums have closed escrow.
One obstacle is the same as that facing any buyer in the state — high costs.
Many illegal immigrants cannot make the down payments or prove they earn enough to pay a mortgage in the state's pricey markets. Those who have been able to find affordable homes have bought in places such as Bakersfield.
"It hasn't been as successful as we expected it to be," said Felix Harris, Los Angeles program manager of ACORN. "The prices keep escalating."
Another factor is the lenders' low profile. Citibank, for example, has been offering loans to illegal immigrants in California under a pilot program since September. But it has not advertised widely and wouldn't discuss details with a reporter. It has relied largely on ACORN and individual immigrants and real estate agents to get out the word.
"Citibank is the largest financial institution in the world," said Gary Acosta, a co-founder of the Latino real estate group. "They are interested in the business opportunity. They think it is the right thing to do. But they are probably not interested in getting involved in the public debate that's taking place right now."
Acosta said that also, the bank probably wants to test the loans before advertising and opening the floodgates.
The lenders' reticence means some real estate agents don't know that the loans are available. Victor Campos, a real estate agent in San Fernando, said he often turns away illegal immigrants.
"As far as we know, if they don't have papers, the lenders won't even touch them."
Some banks are reluctant to take the risks involved in the illegal-immigrant market. "If someone were to get deported, what happens?" said Cynthia Mendoza, an account executive with Bank of America. "It's a loss to the bank."
In addition, large underwriters such as Fannie Mae and Freddie Mac aren't buying the loans, so the banks must keep them. A spokesman for Fannie Mae said the company recently reviewed its policies at the request of several lenders but decided not to make any changes, citing "complex and evolving" U.S. immigration laws.
But other financial institutions say the risk is worth taking.
They are being urged on by one of the nation's chief banking regulators, the Federal Deposit Insurance Corp. Eager to guard against predatory lending practices, the FDIC is encouraging banks to reach out to the Latino population — both documented and undocumented. The loans based on tax identification numbers are one way to do that.
FDIC officials predict that despite the slow start, the loans will take off in California, with its huge illegal-immigrant population.
"It happened in Chicago," said FDIC spokeswoman Linda Ortega. "And it will happen in Los Angeles."
One bank that has gotten into the market is Fifth Third Bank in Cincinnati. "We recognized it as a business opportunity," said Bill Schumer, a vice president of marketing at the bank. "It's appealing to a market that is growing dramatically."
Fifth Third Bank started issuing the loans in November after hiring bilingual loan officers. The bank is reaching out to customers through churches and community organizations.
One of those customers, Gerardo Vega, bought a three-bedroom home in Indianapolis.
"I feel like I deserve to have a house because I do what everybody else does," said Vega, an illegal immigrant who installs drywall for a living. "I pay my taxes."
In Northern California, real estate agent Morlet has helped four undocumented immigrants buy homes legally. Morlet, a U.S. citizen originally from Mexico City, said he understands his clients' desire to own property in the United States and to buy it through legitimate lenders.
"I live in an area where a lot of people get [defrauded] by people who don't have any scruples," he said.
Now that loans are available, Morlet faces the challenge of finding homes his customers can afford. When he comes across a deal, he must work hard to beat other bidders. The mortgages take much longer than average and require several more steps.
But his clients, Morlet said, are willing to wait.