Tuesday, September 23, 2008

Illegal Immigration and the Subprime Mortgage Crisis

With all the blame being passed back and forth, one of the key causes of the current financial crisis is being ignored by both parties and the mainstream media - illegal immigration.

From a Reuters article dated Jan 30, 2008:

As an economic slowdown and the subprime mortgage crisis deepen across the United States, Hispanic immigrants are increasingly in danger of losing their jobs and their homes.

Illegal immigrants were able to buy U.S. homes during the boom years, either by showing evidence that they pay taxes or by simply presenting false documents.

Many of them took out high interest fixed-rate loans or subprime mortgages with a low entry rate that later rose sharply.

USAToday reports that minorities are hit especially hard by the subprime scandal:

Recent immigrants lack credit histories, and 35% of Latino families don't have checking accounts. Hispanic families are more apt to have undocumented income, leading them to lenders who make loans without income verification, according to the National Council of La Raza.

The article goes on to blame politicians and community organizers for pressing for more minority home ownership:

Another reason for the subprime surge: Lenders have been supported by politicians and community leaders eager to promote minority homeownership, which remains about 25 percentage points below that of white non-Hispanics.

"Access became such a buzzword that people forgot about basic lending practices," says Keith Corbett, executive vice president of the Center for Responsible Lending. "You are really in debt servitude, having a loan with a loan-to-value ratio of 100% or greater."

The West Australian reports 'NINJA' loans were the cause of the world-wide financial meltdown:

Perhaps we should have known it was too good to be true when an American lender came up with the “ninja loan”. No, it’s not a loan draped in black that flies across the rooftops of the Imperial Palace. It is a loan offered to potential homebuyers who have No Income, No Job, No Assets.

[W]hen banks and non-banks, particularly those in the US, ran out of risk-free clients they moved on to riskier and riskier customers. Hence, the ninja loan, the sub-prime mess and the turmoil we have today.

The target customer for 'NINJA' loans is the illegal immigrant, because they are the ones who have no verifiable income, no verifiable employment, and no social security number with which to track credit worthiness. Since we have no way of tracking the credit history of illegal immigrants, they are capable of just walking away from their loans as soon as their adjustable rates went up.

As such, the greatest amount of foreclosures occur in states that are also suffering the greatest amount of illegal immigration, as depicted in these two charts:

Illegal immigrant populations by state:

Source: Pew Hispanic Center

Home Mortgage Foreclosures by state:

Source: RealtyTrac

There are those that place the blame for these risky 'NINJA' loans on the lenders that made them available to those who clearly had no means of paying them back, but these people fail to recognize the role the Community Reinvestment Act played.

The Community Reinvestment Act, which requires lenders to make loans available throughout their entire market and not just in wealthier neighborhoods, was modified by the Clinton administration to require lenders to make these unsustainable loans available inorder to reach certain percentage of minority home loan goals.

In 2003, the Bush adminisatration along with Sen. John McCain recognized that the two largest, quasi-governmental organizations that were garruanteeing these risky loans, Fannie Mae and Freddie Mac, were in dire need of regulation. They proposed moving the regulation of these two companies under a new agency within the Department of Treasurey. However, democrats strongly opposed this move and killed the bill in committee.

Democrat Representative Barney Frank said at the time, "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Democrat Representative Mel Watt also stated at the time, "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing."

The link between illegal immigration and the housing crisis only furthered when congress passed its $800 billion dollar bailout. Representative Michele Bachmann blew the whistle first:
"At the same time that the American taxpayer was being asked to bail these companies out, Barney Frank, the chairman of the Financial Services Committee, instituted a sort of tax on Freddie and Fannie, and that tax goes into what's called an affordable housing trust fund," explains Bachmann. "It's a really a taxpayer-subsidized housing fund, but that money will go to organizations like La Raza and...ACORN."

Both La Raza and ACORN have been strong advocates of illegal immigrant home ownership and have been tied to voter fraud.

If congress fails to recognize the substantial role illegal immigration has played in the current financial crisis they will only continue to make the same disastrous mistakes in the future.


chris said...

Great post, thanks for putting it online. However, I would bet dollars to pesos that no one in the MSM, or either major party candidate, will discuss it.

Tony said...


Seriously, if there were a gold medal for leaps in logic and fact you, dear sir, would win.

I admire this post on sheer brazenness and blaming illegals before mortgage companies and unregulated Wall Street lenders who want 700 billion back is actually quite brilliant.

If you can blame undocumented workers for global warming and bad summer movies. I think you might get a consulting gig somewhere!!!

James said...

I know you come to the issue with somewhat of a biased viewpoint, however, I think there is more than enough evidence to suggest the two issues are linked.

Of the Hispanics I know and associate with, they have a very different opinion of the illegal immigration issue than what the media seems to portray coming from the Hispanic community. They just don't like it one bit. They see themselves or their parents or grandparents as having followed the rules and come to this country legally and those who come illegal as cheating.

I myself try not to blame the illegal immigrants themselves, but instead try to direct the blame to those who encourage the crime. I don't think we should deport non-criminal illegal immigrants, but I do think we should be throwing their employers in jail. We should be prosecuting those in the government that blatantly ignore immigration law for their own financial or political benefit. I simply can't find a reason to fault an illegal immigrant who comes to this country to improve his/her family situation if our business and political leaders continue to encourage them to do so.

However, you cannot for one second tell me that making loans to illegal immigrants, who have no SSN or credit to worry about, makes sound business since. An illegal immigrant can just walk away from their loan with no repercussions. If you or I did that, our credit would be destroyed. We would never be able to buy a home again. The illegal immigrant can just pick a new name and start over.

The post is not meant to blame the illegal immigrant, but to blame those in congress who encouraged and in fact mandated lenders make loans to them. Since they do not have the verifiable income, assetts, or credit to get a traditional loan lenders were forced into providing these subprime NINJA loans.

The data is there to support the claims. Each article I linked to is from a mainstream publication. Each article talks about the links but tries to downplay them or provide excuses.

I would love to be proved wrong. I would love to see the data that shows my suspicions aren't valid. The unfortunate fact is the fed won't provide this data. Why is that?

Why are the states with the highest foreclose rates, also the states with the highest rates of illegal immigration?

There is enough circumstantial evidence to warrant further investigation, in my opinion.

chris said...

Tony, do you contend that illegal aliens did not take out mortgages in the USA?

Please don't cite the WSJ article about ITIN mortgages either. It won't help your case.

shay salomon said...

"Why are the states with the highest foreclose rates, also the states with the highest rates of illegal immigration?"

I too have noticed that border states, in general, have a higher foreclosure rate. I have an explanation.

I worked with a group that tried to help elderly people who were being evicted from their homes, in some cases homes their parents or they themselves had built, and which they acquired without debt. Why were they being forced out? Lending firms had targeted them, and convinced them to take out small loans (typically $5000) against their home equity.

Why were they so stupid to take out the loans? Believe me, they felt stupid, but typically it was to pay for a steep rise in property taxes, or medical bills.

In some states, it's illegal for a lender to take someone's house for a fraction of the worth of the house. It is even be theoretically illegal in our state, Arizona, but the long arm of the law was not protecting these elderly people.

A real estate lawyer who helped us with one case, who had previously been an assistant District Attorney, explained why illegal lending was taking place in border areas, more than in more northern states:

"I quit my job at the DA's office because it was too boring. We spent everyday prosecuting tiny amounts of marijuana smuggling, tiny amounts of immigrant trafficking. Most of the accused were poor, humble people who didn't even argue with us. It was a waste of my education to be prosecuting these people.

"Normally, the DA prosecutes large organized crime rings, and white collar crime, cases that take years to research and prosecute. Because we wasted all our time on these petty offenses, we had no time to allocate to big crime. These illegal and marginal lenders had no one watching them, no regulation."

If I were going to blame undocumented immigrants for anything, it would be for the "crime" of distracting us from real crimes that unscrupulous big businesses and their friends in big government are committing.

By the way, we didn't succeed in helping most of those folks, and most of them got sick and died soon after they were evicted from their homes.

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