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.”
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.”
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.”