BY KERRY CURRY
August 1, 2014 – With immigration reform stalled, housing professionals look for ways to help undocumented residents achieve the American Dream
A surge of illegal immigration over the summer by unaccompanied minors has brought immigration reform and border security into the news in a big way. Still, the dramatic headlines – some claiming a humanitarian crisis – are unlikely to get immigration reform back on track in Congress. For housing leaders – who recognize immigration as a key driver of household formation – lack of immigration reform comes as a big disappointment.
“It’s not just disappointing from a perspective of an advocate,” said Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals. “It’s disappointing because I think the argument from an economic standpoint is pretty clear, especially in the housing industry.”
That economic argument, for NAHREP, translates into $500 billion in home purchases and new mortgages over a five-year span if just 3 million of the estimated 11 million undocumented immigrants in the U.S. obtain a legalized status, then buy into the American Dream. It estimates $180 billion in homeownership-related consumer spending during that time, assuming an average household income of $40,000.
As Congress wavers on immigration reform, housing industry leaders are left to wonder what impact a lack of reform might portend for the future of housing, whose recovery from the financial crisis has been less than robust.
Over the past year, several groups in and outside the industry have had plenty to say about the influence of immigrants on housing. Here’s a quick look:
In the decade 2010-2020, immigrants are projected to account for 32.2% of the growth in all households, 35.7% of growth in homeowners and 26.4% of growth in renter households, according to the Research Institute for Housing America in a study sponsored by the Mortgage Bankers Association.
If the 11 million undocumented immigrants in the U.S. were deported, U.S. housing wealth would drop by $1 trillion and the manufacturing sector would shed a half-million U.S. jobs, according to the Partnership for a New American Economy, a bipartisan group of mayors and business leaders seeking immigration reform.
Since 2010, Hispanics have accounted for a net increase of 559,000 owner households, representing 56% of the total net growth of owner households in the U.S. Their purchasing power is estimated to grow to $1.5 trillion by 2015, according to NAHREP.
Hispanics are more likely than the general population to prefer owning a home, according to Fannie Mae, and more Hispanic renters than the general population (88% vs. 71%) say owning makes more financial sense than renting.
The Asian American and Pacific Islander population, which totals 18.6 million, has increased more than 50% since 2000. The group’s $718 billion in buying power is expected to reach $1 trillion by 2017, according to Nielsen.
Immigration reform stalled last year after the Senate passed a bill with provisions that included border security and a path to citizenship. The House has never brought forth its own bill, and the June primary defeat of House Majority Leader Eric Cantor – who was perceived as favoring immigration reform – has many calling the issue dead for now.
Stan Humphries, chief economist for Zillow, an online marketplace for selling homes, said getting a handle on how many undocumented immigrants already own a home is difficult. It’s a number that would help determine the potential impact of immigration reform on the housing market.
Humphries said he suspects some undocumented residents are buying homes by getting a mortgage in someone else’s name such as a relative, obtaining short-term loans, or buying with cash.
“The question is, how many illegal residents own homes now – and if you control for income – is it more or less than similarly paid legal residents? If it’s lower, then the Dream Act and a path to citizenship would be a boost to housing demand,” Humphries said. There are potential consequences.
“Many people argue that creating a path to citizenship creates more interest from foreign nationals to come here,” Humphries said, noting that housing would benefit if they came. “The more immigration goes up, either legal or illegal, the more housing demand is created.”
REVIVING IT IN LOANS
Some housing industry professionals are finding ways to assist the immigrant community as they await potential benefits from immigration reform.
Jason Madiedo is president and CEO of Venta Financial Group, a retail and wholesale mortgage banking company based in Las Vegas with offices in California, Arizona, Nevada, Texas and Florida. The lender caters to the Hispanic community.
“I was very humbled by our first quarter 2014 numbers. On average, mortgage companies lost money and the cost to close a mortgage has gone up. Our production has doubled. Our profitability has increased. 72% of all of our customers are Hispanic, and 84% of our business is a purchase transaction,” he said.
Venta recently formed a partnership with a Midwest bank to make ITIN loans to immigrants. This mortgage product largely disappeared from the lending landscape during the housing crisis.
An ITIN loan is one based on an Individual Taxpayer Identification Number rather than a credit profile based on a Social Security number. The new product is a 30-year, fixed-rate loan with a 30% down payment. Venta’s banking partner, which Madiedo declined to identify, will keep the loans on portfolio as there’s no secondary market for such a product. The bank has agreed to a $50 million initial commitment, he said.
“We are launching it in Florida, Texas, Georgia, Arizona, Nevada and California. Those are the markets we primarily serve and the highest markets for undocumented workers. It’s only been two weeks and we’ve seen people knocking on our doors,” Madiedo said in June when we talked. “I wish we could do it as a lower loan-to-value, but this is a great start for us.”
A key to the product’s success will be whether Venta can fund the loans in the same time period it takes lenders to do a conventional or FHA-backed loan, Madiedo said. “Realtors tend to shy away from wanting to work with these consumers because there is no guarantee of closing. Sellers don’t want to have to deal with a 60- or 90-day transaction,” he said.
“The LTVs are strongly in favor of the lender, and the consumer doesn’t have a lot of debt. The interest rates are higher. It’s great for the (lending) business from that perspective, but for us, it just makes us feel good to close the gap on their dream.” Madiedo is also working to close the gap for the Dreamer generation – those who came to the U.S. as young children and now have provisional residency status but not permanent status. They were provided two-year temporary residency status and Social Security numbers under the 2012 Deferred Action for Childhood Arrivals (DACA) program.
A son of immigrants, the issue is close to Madiedo’s heart. His parents came to America from Colombia, and he was the “anchor baby,” the reason the family eventually qualified for legal status.
“We have five consumers who are Dreamers. They have a residency card, a Social Security number and credit. In many cases, they have a four-year college degree. Can we lend to them?” Madiedo said he is still seeking some clarification as Venta recently closed a loan to a Dreamer but has hit a snag selling it into the secondary market.
Freddie Mac, for its part, says Dreamers are eligible for Freddie-backed loans. “A non-U.S. citizen who is lawfully residing in the U.S. as a permanent or nonpermanent resident alien is eligible for a mortgage on the same terms as a U.S. citizen,” said Brad German, a Freddie Mac spokesman. A mortgage to an undocumented immigrant without lawful residency isn’t eligible for sale to Freddie Mac.
Obtaining credit remains one of the biggest hurdles for immigrants wanting to buy a home, said Jerry Ascencio. Ascencio is a broker/owner with San Fernando Realty Inc., a 21-year-old independent real estate firm that specializes in the Hispanic immigrant market in the San Fernando Valley north of Los Angeles.
“These are families in which many don’t have status, No. 1, so the very first challenge is the verification of income,” Ascencio said. “Some of these families have applied for an ITIN, an individual taxpayer identification number and are voluntarily submitting their own tax returns and paying taxes to see if they’ll get an opportunity to apply for an ITIN-based loan.”
Although Venta just launched an ITIN product, they remain rare.
“Here are people voluntarily stepping up and reporting everything with the hope and dream to be able to use that verifiable income to obtain their goal – the American Dream of buying a piece of real estate,” Ascencio said.
It’s a business focus where Ascencio feels right at home.
Ascencio’s parents were undocumented agricultural workers from Mexico who came to America in 1968 looking for better opportunities. Ascencio was just 6 months old at the time, arriving with his parents and an older brother.
When he was about 5 years old, the family obtained permanent resident status during a period when the U.S. was allowing families with “anchor babies” – U.S. born children – to acquire legal status. Ascencio, who has a younger brother born in the U.S., became a naturalized citizen about three years ago.
“No Hispanic comes to America aspiring to be a tenant, and that is the absolute truth. When the immigrant Hispanic population comes here, we want to plant roots,” he said. In fact, the literal translation of real estate in Spanish – bienes raices – is rooted assets.
ASIAN IMMIGRANT IMPACT
Hope Atul, executive director of the Asian Real Estate Association of America, wonders whether lack of immigration reform will hurt the market.
“I do think there will be a negative impact on housing because if people don’t feel that sense of permanency, then they are not going to be purchasing a home.”
Asians overtook Hispanics as the fastest-growing ethnic group in the U.S. in 2012, according to the U.S. Census Bureau. More than 60% of this growth has come from international migration.
Atul’s family brought her to the U.S. from the Philippines when she was just 7 after an uncle filed a family-based petition. There was a lot of political unrest in Manila at the time under the regime of Ferdinand Marcos and Atul’s family thought it best to leave, she said. Atul has been a naturalized American citizen for more than 30 years.
Atul said immigrants of Asian descent often come here on a student visa to obtain their undergraduate or graduate degree. When their student visas expire, they must return home if they are unable to find an employer who will sponsor them to obtain a more permanent status. Atul lived for many years in Chicago and said she’s seen firsthand how immigrants have successfully staunched the decline of housing prices and revitalized declining neighborhoods – an issue recently touted in a research report from the Partnership for a New American Economy. She recalled the changes in a Chicago neighborhood known as West Argyle.
“When I first moved to Chicago in the early ’90s, that area wasn’t the place to be,” she said. “There were a lot of shady areas. Now it is primarily an Asian immigrant community – Chinese, Vietnamese and some Filipino. The community has certainly cleaned up. When I first moved to Chicago, I think you could buy a condo in that area for less than $50,000, and now I don’t think you could touch one for less than $300,000.
“The influx of immigrants into communities like that have certainly helped stabilize housing prices. I can think of other communities across America that have experienced that.”
But considering all the other challenges affecting housing, immigration reform simply isn’t high on the list of major impacts right now, said Zillow’s Humphries.
“The major issue the housing market is dealing with right now is very high numbers of negative equity,” he said. “About 19% of homeowners with a mortgage are in negative equity. That is creating inventory constraints, which in turn is creating price spikes.” Household formation rates also remain low, income growth is stagnant and homeownership is falling as the nation creates more rental households, he said.
Certainly, immigrants hold the promise of improving housing’s outlook, and the growing political influence of Hispanics could bring immigration reform back to the forefront during the next presidential election.
“I think the housing market, in general, is going to experience growth,” NAHREP’s Acosta said. “I just don’t think it’s going to accelerate at the pace that we were hoping without the supply of immigrant buyers entering the market.”