ITIN Lending in America

ITIN Lending in America

/ By Curt Knuth of NCS

Investors and lenders are making ITIN loans less risky via better risk mitigation tools.

ITIN mortgage programs are slowly picking up momentum as more lenders seek to serve the expanding Hispanic population.  Existing verification/data solutions are finding new use cases where lenders and investors seek to better qualify their lending decisions.

ITIN mortgage programs have been in existence for well over 15 years.  ITIN loan programs are crafted to qualify and underwrite borrowers into a loan when they are unable to obtain an SSN (Social Security Number), a key identifier used within the origination process to validate one’s identity.   SSNs are also a requirement for the portability and sale of a mortgage by most investors on the secondary market. 

Lenders offering an ITIN program are often forced to portfolio the loan or find private or publically backed community programs.  However, awareness and use of existing verification and analysis tools are better equipping lenders to qualify credit worthy and legitimate borrowers into a sound mortgage.

The IRS began the ITIN program in 1996 as a means for resident and non-resident aliens to meet their federal tax liabilities.  An ITIN (Individual Taxpayer Identification Number) is an identifying number issued by the IRS.  Persons that qualify or are required to obtain an ITIN do so by completing the IRS’ form W-7 and providing identifying documentation, such as a passport, national identification card or a foreign voter’s registration card.

Recent updates by the IRS’ to the ITIN program are addressing ID and tax return fraud concerns.  These controls include expiration dates on issued ITINs when the corresponding taxpayer fails to file a federal tax return in the last three years.  Additionally, all ITINs issued before 2013 with middle digits of 78 and 79 (Example: (9XX-78-XXXX) have also expired as of January 1, 2017.

Lenders utilize the ITIN as a piece of the puzzle when compiling proof of the prospective borrower’s identity.  Critics of ITIN programs have pointed to the ID fraud and subsequent high foreclosure rates of ITIN loans in the late 2000’s.  However, most news sources at the time (and subsequent market studies) have pointed to shoddy underwriting practices and poor finance vehicles (subprime) used during this period as the underlying culprit, rather than the ITIN borrower population as a whole.

Today’s ITIN lenders are benefiting from lessons learned.  ITINs can be verified through the IRS using the traditional 4506-T process.  When an ITIN taxpayer has filed a federal return for the years requested on the 4506-T, the IRS will return a tax transcript if the ID data on the 4506-T matches the IRS’ database.  Instant bank statement solutions also assist in piecing together an applicant’s ID, as banking institutions issue DDA accounts for applicants with ITINs.  Verification of employment and driver’s license verifications (as of 2/16, 12 states, including D.C. will issue licenses to undocumented aliens) are also available tools.

Credit reporting solutions and non-traditional data repositories are continuing to gain a better geographical footprint as more utility and rent furnishers report their data.  Other data repository models, such as PRBC include options for borrowers to create an account and link their mobile phone, utility, rental and other applicable accounts together to create a payment history for an authorized creditor to review.

For the 100,000,000 underserved and credit invisible borrowers in the United States, there’s a growing segment of mortgage lenders willing to place them in a safe and sound mortgage, and for those same lenders, there’s a better range and a much more powerful origination toolset to qualify non-traditional borrowers.

Contact NCS at info@ncstrv.com or call 800.582.7066 for further information on NCS’ risk mitigation solutions.