When Jos? Octavio Cano, 60, moved to Houston from Mexico with his wife and teenage son early last year, he boasted a valid work visa and a hefty salary. But without a credit history in the U.S., the programming executive for Spanish-language Liberman Broadcasting Corp. couldn't buy a home. Instead, he was paying more than $2,000 a month in rent -- a huge waste, he felt.
Then, last July, General Motors Acceptance Corp.'s (GM) mortgage-lending unit launched Settle America, a home-loan program catering to new immigrants. It was Cano's lucky day. By considering his rent- and utility-payment history instead of the usual credit score, GMAC accepted a smaller downpayment than normal, just 3%, and lent him $320,000 to buy a four-bedroom house with a pool.
As lenders look to keep lucrative mortgage-origination income flowing, they are often bending age-old credit rules to appeal to America's fast-growing immigrant population. Just 48% of Hispanics own a home, vs. 68% for the overall population. Says Anna L. Paulson, senior economist at the Federal Reserve Bank of Chicago: "This is where the growth in the [housing] market is going to come from."
Banks are trying to exploit that potential by tailoring their requirements to meet the needs of immigrant groups, though anyone can apply for these loans. Wells Fargo & Co. (WFC) allows the incomes of a spouse and an unlimited number of aunts, uncles, and cousins to count for up to 30% of the income that is needed to qualify for a loan. It will also accept as much as 30% of qualifying income to be in cash, though normally it wouldn't accept any. Such concessions recognize the realities of the lifestyles of new immigrants. They're more than twice as likely to have members of their extended family living with them than non-Hispanic whites, according to the Census Bureau. Besides, many Hispanics are paid in cash for jobs such as landscaping and housecleaning. Wells Fargo's mortgage lending to Hispanics has more than tripled since 1997, to $5.1 billion.
More than 200 mortgage lenders have jumped on the bandwagon, especially since 2000, when Fannie Mae (FNM) and Freddie Mac (FRE) started to buy loans with less stringent status and income requirements than before. For example, GMAC's program allows borrowers to put down as little as $1,000. Cash gifts from family members or communal funds also can be used as downpayments. At Bank of America Corp. (BAC), first-time mortgages to Hispanics rose 30.1% last year, in part because it now allows up to four family members on an application. "The whole household functions as a middle-class unit," says former Housing & Urban Development Secretary Henry G. Cisneros, now chairman of American CityVista, a homebuilding joint venture with KB Home (KBH) that largely targets Hispanics.
In fact, some lenders are even rushing to sign up Hispanics with a questionable legal status in the U.S. Undocumented immigrants, mostly from Mexico, apply for an Internal Revenue Service ID number. Using that in conjunction with a Mexican consular ID recognized by more than 70 financial institutions, they apply for a mortgage. Chicago's Second Federal Savings has made $15 million in such loans and expects to issue up to $10 million worth each month this year.
Lending to immigrants can be risky. Cash-based incomes are hard to verify. And immigrant mortgages are still so new that many can't be packaged for resale as mortgage-backed securities, which banks use to spread some of their lending risks. So banks are stepping up counseling for immigrant homeowners and training loan officers to scrutinize mortgage applications from recent arrivals more closely.
They may be worrying too much. On home loans insured by the Federal Housing Authority, Hispanics had a default rate of 1.15% in 2002, and Asians just 0.59%, vs 2.78% for whites, according to a study last year by the Congressional Budget Office. Says GMAC Executive Vice-President Rick A. Gillespie: "There are qualified people who are outside the [homeownership] walls, but they are quality customers." Now, Jos? Cano and many other immigrant homeowners can say "bienvenido a mi casa." By Brian Grow in Atlanta