Welcome To America. Want To Buy A House?

ITIN loans open up possible sources of new originations

Erica Drzewiecki
Welcome to America

Senko built a career creating solutions for underserved borrowers and investing in undervalued assets.

ITIN loans are just one of many Non-QM products Senko’s company lends and invests in. They are geared toward people who may have been in this country for a while or came here as children, but don’t have green cards or necessary documentation to secure traditional loans.

“This is a very fertile market,” Senko adds. “A lot of these folks are tradespeople, so there’s a lot of pride in ownership and the performance on these loans is really second to none.”

Oftentimes multiple generations of a single family live in one home together. Mom and Dad’s names are on the loan, but adult children, grandparents, cousins, and other relatives are contributing members of the household.

“This population doesn’t take on a lot of unnecessary debt,” Senko says. “They are very cash heavy, they appreciate, and they pay off quickly, too, because they want to be out of debt. They’re not looking to take advantage. As these folks earn and work, they pay off these loans very quickly.”

Just like Senko’s great-grandparents, who settled in German, Italian, and Irish neighborhoods when they came to the U.S. in the late 19th century, more recent waves of South and Central American immigrants tend to assimilate as neighbors.

“If you’re a loan officer wanting to tap into this market, and particularly if you can speak Spanish, this is a fantastic market because they’re new to the country,” Senko says. “They don’t have those deep connections in the community to realtors, to loan officers, to mortgage banks, to banks. It’s probably one of the best referral business markets out there. They tell two friends, and so on and so on.”

Robert Senko, president, ACC Mortgage

Oscar Reynaga, branch manager with E Mortgage Capital, is an MLO who has tapped into the ITIN market along the southwestern U.S. coast. He is a native of Mexico.

“When I first came to the country as an immigrant in 1995, I was just a teenager,” Reynaga recalls. “We all lived in an apartment. There was no space for a garden. You have no idea how that broke my mom’s heart because she needed flowers and roses and plants.”

He knows firsthand what it’s like for a family who comes to America for a better life but is barred access to the same resources within reach of ordinary Americans.

“Think about children saying, ‘Dad, how come we don’t buy a house? You drive this beautiful truck or this beautiful car and we can afford a house, right?’ And then you tell your kids, yeah, we can afford it, but the bank won’t lend to me because I’m illegal, or I don’t have a valid social. It’s heartbreaking to kids and families, to spouses,” he says.

Border states such as California, Nevada, Florida, and Texas are teeming with could-be borrowers, according to Reynaga.

“In multiple regions there’s a need for a program for millions of potential homeowners, and the opportunity is very minimal right now,” he says. “It’s a solution to home ownership for individuals that have an undefined legal status here in the country. They don’t have the means to get a work permit, to get a residency card or working visa, or, of course, citizenship. So what the ITIN loans do is allow hardworking individuals to lawfully get into a house.”

It’s Not That Hard

Securing, writing, processing, and closing on an ITIN loan may pose unique challenges, but they’re not insurmountable.

“It really isn’t different from a traditional loan,” Senko says. “We still have the same rules and regulations that are prescribed by Dodd-Frank. We need to have the ability to repay. We still need to see pay stubs, W-2s, tax returns, bank statements, P&Ls (profit and loss statements) if they’re self-employed. The qualifying process is no different, so it’s not like they’re any more risky. In fact, I find their performance is extraordinary.”

The American Dream

ITIN borrowers often haven’t established good credit right away and need help getting there.

“That’s one of the things that I spend a lot of time on, helping clients understand credit and plan ahead to build a good credit score so that they’ll be able to get the lowest possible rate,” Reynaga says. “I tell them, you have to do A, B, C, and D in order to get to E. And that’s usually what makes it a reality. When you create a path and you tell clients what to do and they follow the plan.”

Difficulties in verifying an applicant’s financials can lead to some nuances in the underwriting process, but it’s worth the trouble to lenders who do ITIN loans.

“The key is, these folks are putting down 15, 20, 25% to buy these homes. They have the money,” Senko says. “They’ve proven the ability to save money. Now we have to prove their ability to repay in terms of qualifying them.”

Education is another roadblock, as is the case in any business. Sometimes people hear about a friend of a friend getting a home loan, and it makes them think they can qualify, too.

“Unfortunately, not everybody is well informed or educated on what they need to have as far as financials and credit to be able to buy a house,” Reynaga says. “They get misled into what to do, what they need to provide.”

ITIN loans often have higher interest rates in comparison to conventional home loans, due to the perceived higher risk, but this varies among lenders, loan programs, and individual circumstances.

Securitizations And Asset Buyers

A simple lesson in securities is necessary to understand the profitability of ITIN loans.

In order to facilitate market liquidity, Non-QM loans such as ITINs are packaged into securitizations. Rating agencies evaluate the metrics, assign the package a grade, and then various funds bid on different portions of it.

“There’s different rating agencies, and you have some that will say you can have zero of these loans in a securitization, while others say you can have up to 5 percent, but to have a securitization that would have 20 or 25 percent ITIN is impossible today,” Senko says. “I think that will change down the road because that logic is antiquated and flawed.”

About 5% of the total is typically held onto as a retention piece by the lender or aggregator, while the remainder of the securitization is sold in the marketplace among insurance companies, pension funds, mutual funds, and other asset buyers.

“That money from bonds comes back to the originator to then go out and lend again and this washes and repeats,” Senko explains. “So it allows them to start with that money and then be able to continue to keep lending out and then securitize those future loans down the line.”

A number of buyers prefer the whole loan strategy, which doesn’t involve breaking up the loan in the secondary market.

Either way, the funds are out there.

“There’s plenty of pockets of money that do support these that love the returns and love the performance of these loans, which creates a healthy lending market for these folks,” Senko says.

With acceptance and tolerance slowly increasing from a financial standpoint and a steady flow of potential borrowers, will more lenders want to get involved in ITIN?

“I felt like we always had this great niche,” Senko says. “There were other lenders out there like us, so we didn’t invent the space, but I think every industry, regardless — computers, technology, the mortgage industry — is very much a copycat industry. So when you see one firm having success, everyone says, well, what are they doing? We should be doing what they’re doing. So I think you have a combination of originators, of other lenders like ACC, adopting, adapting, and wanting to get into this market.”

Getting in

Every good LO understands the need to create demand and interest in themselves.

Finding a niche in a competitive landscape is what drove Senko to ITIN loans.

“These were people that couldn’t go to their bank, they had to come to a mortgage professional,” he says. “So the first thing is to really separate yourself from the loan officer crowd as someone who can solve their problem. When you have these unique circumstances, you want to work with a partner that can understand and navigate. That’s the strength of it.”

Senko offers a good talking point for loan officers who aren’t yet experts in ITIN but would like to get their feet wet.

“You don’t have to be the expert today,” Senko says. “You will learn that. What you need is to have the resources and the contacts to go to when you have those questions. Meaning, a customer or a realtor approaches you with a scenario. You say, that sounds like something I can do. Give me some information, and then you call your account executive and say, ‘I have this high level loan I have to underwrite. What do you think you can do for me?’ ”

While there are no general statistics as to the delinquency rate of ITIN loans, specific financial institutions that specialize in these have reported positive results.

For example, the Guadalupe Credit Union reported a delinquency rate of 1.24% for its ITIN base, compared to 1.88% overall for an unspecified time period. The Latino Community Credit Union reported a 1.16% delinquency rate for ITIN, compared to 1.88% overall.

The American Dream

Pride of ownership is a phrase that is common among lenders who are well versed in ITIN loans.

“People don’t care about the cost, they just care about the objective and realizing the dream of homeownership,” Reynaga says. “To them, it’s pride of ownership, the right to having their own home. It’s about their kids, their grandkids; it’s about their brothers and sisters and mom and dad. To show them this is the land of opportunity.”

Just last year, he helped several families secure loans along the California coast, where they didn’t imagine they could even afford to settle down.

“That was very rewarding,” Reynaga says. “These were childhood friends and you put a smile to their faces and it’s all over Facebook who helped them. I got bombarded with phone calls.”

He would like to see lenders open their minds to ITIN loans and recognize their value, both financially and morally.

“You will not regret getting someone with an ITIN to be part of your portfolio because they pay their mortgage off on time and very quickly,” Reynaga says. “Most of the cases I’ve seen have just been like that.”

“If they have the money, and they have documentable income sources, then they have the ability to share in the American dream,” Senko says. “And I think that is what is exciting for the market and for the country and I think it creates stable communities for everyone.”

Erica Drzewiecki
This article was originally published in the NMP Magazine November 2023 issue.
Published on
Nov 02, 2023
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