Pipeline: At Issue:Will Immigrants Be Able to Take Up Slack In

How high will mortgage originations climb during the next five years or so? The industry's economists have made their predictions, and they are confident of a rising trend that could carry volume back almost to the record $1 trillion of 1993.

A key assumption is that immigration will make up for a shrinkage in the number of first-time homebuyers among the native-born population.

Now there is growing evidence - not undisputed - that new immigrants may not be able to take up all the slack.

A new study by a Harvard professor, George Borjas, says that the percentage of immigrants entering the welfare system in the United States is rising steadily.

During the mid-1980s, he says, 17.7% of immigrant households received some kind of assistance. By the early 1990s, the figure had risen to 20.7%. During the same period, the figure for the native-born population declined to 14.1% from 14.6%.

"Immigrants are not only more likely to have some exposure to the welfare system; they are more likely to be 'permanent' recipients," he wrote in describing his study in National Review.

Prof. Borjas also pointed out that information about the U.S. welfare system was widely available abroad and he concluded that U.S. welfare policies might be enticing people to come here and stay.

The professor is on the faculty at the John F. Kennedy School of Government at Harvard. His study, written jointly with Lynette Hilton, will appear in the Quarterly Journal of Economics next month.

The implication is clear: that the new immigrants are less financially capable than earlier ones and thus less likely to become homebuyers at the high rates that were typical in the past.

David Berson, the chief economist at Fannie Mae, said that while he had not yet seen the study, he doubted that welfare-prone immigrants would have much effect on the total impact of immigration.

The most recent changes in immigration laws made it easier for affluent foreigners to move to the United States, he said, and this suggests future immigrants may be more capable of homeownership than earlier ones.

The absolute volume of immigration that will be needed to shore up homebuying is also a matter of debate. An article published in the Dallas Fed's Economic Review in the first quarter of 1994 concluded that immigration quotas would have to double to make up for the impact of the shifting demographic mix on the housing market.

The authors, John K. Hill of Arizona Public Service Co., and D'Ann M. Petersen, an assistant economist at the Dallas Fed, looked at three alternative scenarios to its base case of 500,000 immigrants a year.

The base case is from the projection made by the Census Bureau based on the pre-1990 immigration quota. The first alternative uses an increase of 200,000 immigrants a year, based on the increased quota of 700,000 a year as of 1990; the second, an increase of 500,000 a year; and finally, an increase of a million a year, to 1.5 million.

Their conclusion: only in the third scenario did immigration fully make up for the declining numbers of native-born first-time homebuyers.

Present projections of mortgage originations rely heavily on a steadily rising number of loans to buy homes rather than on refinancings. If support from immigration proves considerably smaller than has been projected so far, then economists will have to exercise their prerogative of revising the projections downward.

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