On Jul. 13, three federal banking regulators issued guidance to consumer lenders, reminding them "to apply existing safe-and-sound credit risk management practices when lending to borrowers who are not legally authorized to work in the United States (non–work authorized borrowers)."
While lending to someone who is not technically authorized to earn an income in the U.S. sounds reasonable, the issue isn't as clear-cut as it first appears.
That's because of something called ITIN mortgages.
How Can Non–Authorized Workers Get Mortgages?
When consumers apply for a mortgage, they are asked for their social security number (SSN).
But that doesn't mean you can't get a mortgage without one.
Some lenders accept an individual tax identification number (ITIN) in place of an SSN. ITINs are issued by the IRS to workers who owe taxes but don't have an SSN. Not everyone with an ITIN is non-authorized, though. In fact, most ITIN holders are authorized to work, such as foreign nationals, nonresident investors, and others. However, some ITIN holders are in fact not authorized to make an income in the U.S.
"Since 2003, unauthorized immigrants have made up 4.4% to 5.4% of all U.S. workers," said a 2024 report from the Pew Research Center. While technically against the law, the government also recognizes tax revenues that unauthorized workers generate.
Someone with an ITIN can provide a lender with official IRS documentation that proves his or her earnings over previous years. And, in some cases, that can be the basis — along with other evidence of identity, creditworthiness and existing indebtedness — for a mortgage application.
What the Guidance Did
The July guidance, issued by the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA), could deter lenders from approving ITIN-based mortgage applications.
It does this by reminding lenders that non–work-authorized borrowers can be removed from the country at any time. And such events are likely to undermine these borrowers' ability to keep up payments on their mortgages.
"As the guidance discusses, lending to individuals who are not legally authorized to work in the United States may present elevated credit risk because a borrower’s ability to generate income, maintain employment, and remain financially stable may be subject to greater uncertainty," said a Jul. 13 news release from the Office of the Comptroller of the Currency.
"Among other things, the guidance advises financial institutions to identify, measure, monitor, and control these risks through safe and sound underwriting practices that assess a borrower’s willingness and capacity to repay according to the terms of the credit obligation," continued the news release.
A Solution in Search of a Problem?
In June, the Consumer Financial Protection Bureau (CFPB)issued its own guidance, which appeared in The Federal Register:
"The Truth in Lending Act and its implementing Regulation Z require creditors to assess consumers' ability to repay before offering mortgages and certain open-end credit products. This statement emphasizes to creditors that these requirements may obligate consideration of a consumer's immigration status, especially where removal from the United States may disrupt the consumer's income."
The agencies have not proved that ITIN mortgages have historically defaulted at unusually high rates. Urban Institute suggests the opposite, although evidence is anecdotal.
However, the CFPB's concern may be that current immigration enforcement may increase future credit risk.
So, how many ITIN-based mortgage applications are at stake? We couldn't find recent data, but CNBC cites some from 2023: "[The Urban Institute] estimated that a small number — 5,000 to 6,000 — of ITIN mortgages were made in 2023. For context, there were about 4.6 million mortgage originations in 2023, according to the National Community Reinvestment Coalition, an equity advocacy group."
That's one in every 770 new mortgages. It's not nothing, but a long way from being a systemic risk to the financial system.
