There is an article in today’s Wall Street Journal about the mortgage industry. Big surprise, right? Except this article is about what the Journal calls “a bright spot in today’s gloomy mortgage industry.” Strangely this isn’t jumbo loans to the super rich who don’t care about interest fluctuations. It’s about home mortgage loans made to illegal immigrants.

Despite the crash in the mortgage industry and the housing market, and the trendiness of defaulting your loan for the gigantic home you can’t afford, America’s illegal immigrants continue to pay the bills. According to the article, default rates on loans to illegal immigrants are one-half the default rate of prime mortgages, and much less than a tenth the default rate on sub-prime mortgages.

The loans are called ITIN loans, because the require an individual tax ID number used by illegal immigrants to pay their taxes (yes, illegal immigrants often pay their taxes). According to the article, banks ask applicants to show they have been filing taxes for at least two years, and also review utility, rent and cellphone bills as well as receipts for money sent to relatives abroad. Then they loan them the money to purchase houses. The American dream.

However, there are clouds on the horizon. Supply for ITIN loans is starting to outstrip demand, because big banks don’t deal in them much for fear of a backlash over doing business with illegal immigrants, and until recently there was no large institution to securitize these loans, similar to the service that Fannie Mae and Freddy Mac do with other home loans (and what a fine job they’ve done). Also, the Department of Homeland Security’s plan to crack down on illegal immigration obviously has some banks nervous.

As is so often the case with respect to immigration and trade issues, economic realities seem to be clashing with political realities. Hopefully, as the two interests collide, someone will keep simple fairness in mind, and illegal immigrants won’t lose their homes when they lose their jobs in the coming crackdown.

http://online.wsj.com/article/SB119188674981652816.html?

Unfortunately, the WSJ is subscription-only. If you’re not a subscriber and really want to see the article, email me and I’ll send you a .pdf of it.

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