CFPB, Fincen guidance casts a pall over ITIN lending

• Key takeaway: Although the guidance does not carry the force of law, onlookers say it could prompt some lenders to scale back lending to borrowers using individual taxpayer identification numbers, or ITINs, due to compliance and regulatory concerns.
• Expert quote: "I have not seen anyone shift away from the product, but I think it's only a matter of time — even though these advisories are not binding." — Andrew Dort, owner of Las Vegas-based mortgage brokerage Pride Lending. 
• What's at stake: Some community advocates say the advisories could make immigrants more hesitant to engage with banks and other financial institutions for mortgage loans at a time when regulators are trying to boost banks' share of the mortgage market. 

WASHINGTON — Recent guidance urging financial institutions to factor immigration status into certain lending and compliance decisions has raised concerns about the future of a small mortgage market serving borrowers without Social Security numbers. 

The Consumer Financial Protection Bureau and the Treasury Department's Financial Crimes Enforcement Network, or Fincen, recently issued separate advisories suggesting that immigration status may be relevant to lenders' ability-to-repay assessments and banks' customer due diligence obligations.

Although the guidance is not legally binding, some mortgage industry participants say it could make lenders more cautious about extending loans to borrowers who use individual taxpayer identification numbers, or ITINs, because of uncertainty around compliance requirements. 

"I have not seen anyone shift away from the product, but I think it's only a matter of time even though these advisories are not binding," said Andrew Dort, owner of Las Vegas-based mortgage brokerage Pride Lending. 

The CFPB advisory, issued in June, said the Truth in Lending Act requires creditors to assess a consumer's ability to repay before extending mortgage or other open-ended credit products. Fincen, meanwhile, urged financial institutions to report suspicious activity related to undocumented immigrants and encouraged banks to consider the use of ITINs when applying risk-based customer due diligence procedures.

No major lender has publicly announced changes to its ITIN lending programs since the advisories were issued. Still, industry participants note that the guidance could raise questions about how lenders should weigh immigration-related risks while complying with fair lending laws. 

ITIN mortgages are a niche product offered by some banks, credit unions and nonbank lenders that allow borrowers who do not have Social Security numbers to take out loans with U.S. banks. The market's size is difficult to measure, but the Urban Institute estimated that roughly 6,000 ITIN mortgages were originated in 2023. The Internal Revenue Service created the ITIN designation in 1996 to allow people who are not eligible for Social Security numbers to file and pay federal taxes.

While the market remains relatively small, ITIN loans play an important role in expanding homeownership opportunities for immigrant communities and other borrowers who lack access to conventional mortgage products.

Consumer advocates say that the guidance is ambiguous on how immigration status should factor into underwriting decisions. The National Consumer Law Center argued that lenders could face fair lending risks, specifically running afoul of the Equal Credit Opportunity Act's prohibitions on discrimination on the basis of national origin. 

"The statement is clear as mud," said Chi Chi Wu, director of consumer reporting at NCLC in a statement. "It tells lenders that they should consider immigration status because there may be a loss of income if the immigrant is detained or deported. But it also recognizes that lenders can't always reasonably predict that the immigrant will be detained or deported, and in those cases, lenders don't need to consider immigration status."

Some lending professionals say that risk associated with ITIN mortgages is limited by the product's small volume and stringent underwriting standards.

Alex Naumovych, mortgage loan officer at First Alliance Home Mortgage, said borrowers often face higher barriers to qualification than applicants seeking conventional loans.

"Every year these programs get more and more complicated and fewer investors are buying them," he said. "Most of the time you have to make a 20% down payment, and the interest rate can be 1.5 to 2 percentage points higher than a conventional mortgage. It's generally very difficult to qualify, and it's a very small market."

In a 2024 report, the Urban Institute said ITIN mortgages generally perform well and are responsibly underwritten, but added that more performance data is needed to demonstrate low delinquency rates and encourage broader market participation.

The report said that if this type of product was more mainstream it would "expand access to homeownership, and the wealth-building opportunities and stability that it provides, for an important untapped and underserved market."

Some community advocates say the advisories could discourage immigrant communities from seeking financial services.

Manan Shah, policy advisor at the National Community Reinvestment Coalition, said that the advisories are a pretext for "excluding hard-working immigrants from accessing credit."

"Banks already have to follow strict identification and compliance measures," he said. "Collecting data on immigration status will only worsen their administrative burden. Banks should not play the role of immigration enforcement. Immigrants should be able to go to their local bank without any fear."