What is an ITIN loan?

In the aftermath of 9/11, Congress passed the Patriot Act which changed a lot of little things in a multitude of areas. One significant impact was the merging of databases between the IRS and the Social Security Administration. The result of that merge was an identification of the vast number of illegal immigrants in this country and a better insight into their financial situation.

Prior to the merger, an illegal immigrant would pay for a fake social security card or borrow someone else they knew in order to get employment. If the employer deemed the information to be valid, they put that person on the payroll. Each pay period, the employee has social security withholding taken out of their check and the employer pays the required matching funds. This money was sent to the social security administration who kept a database of money paid into them and by whom.

Taxes were also taken out of those checks and paid by the employer to the IRS.  The result of the merge was that the IRS found out how many people had been paying taxes using social security numbers that didn't exist. From that pool of people they could further deduce who were homeowners, but the mortgage company reporting interest paid for that same person.

The IRS didn't want to tell tens of thousands of tax payers to stop paying because of their use of an invalid social security number so they sent a notice to employers requesting their employees with invalid social security numbers fill out an application for an Individual Tax Identification Number (ITIN).  This way people who had been using invalid social security numbers to work in the US could continue working under a valid ITIN number.

Another off-shoot of this discovery was that the IRS sent notices out to mortgage loan servicers telling them which borrowers they have were using invalid social security numbers and requesting them to get with their clients to get the ITIN number so that the mortgage interest statements sent to homeowners and the IRS were done under a valid ITIN number. Now mortgage servicers could see how many clients they had who were potentially illegal immigrants and better understand the types of homes they owned, where they lived, what they earned, etc. This information continues to be analyzed today.

Banco Popular is a bank based in San Juan, Puerto Rico who has made mortgage loans to people based on their having ITIN numbers and not valid social security numbers. Banco is by far the largest lender in this segment. While often criticized as supplying home ownership opportunities to people illegally in the United States, mortgage brokers and lenders claim that there is no law against lending to people of foreign citizenship.  There are no laws forbidding foreign ownership of property in the United States and thus, Banco Popular through their wholesale mortgage division has expanded their loan portfolio.

Applicants have to show a 2 year history of employment and of filing a tax return to the IRS, but do not have to have established credit histories. Alternative payment history such as cancelled checks for apartment rents, utilities, etc. can be used in lieu of a credit report.

ITIN lending is primarily used in the Hispanic community and it's no secret that a majority of these home buyers are living and working in the United States illegally. Still, it remains a lawful activity to provide home loans to these applicants.

Added for clarification - I do not offer ITIN home loan programs and this article is not an endorsement of those programs, nor is it a solicitation for applicants.