Non-QM product spotlight: the ITIN loan

Demographic shifts underline a need for this product

Non-QM product spotlight: the ITIN loan

If you live in the United States or do business in the United States, you may not have a Social Security number, but you should have an Individual Tax Identification Number (ITIN) to file taxes. That number means that you can also get a mortgage loan.

The ITIN loan falls into the non-QM category of loan products. According to Raymond Eshaghian, president of GreenBox Loans, the ITIN loan is often used by people who were in the States legally and then their visa expired or they’re undocumented and have obtained ITIN numbers by going to the IRS website.

“Because of the current political climate, it’s something that most people don’t understand: a lot of these folks are taxpayers and they fall outside of this propaganda that’s out there that that all of them come here and use our systems and take advantage of what the U.S. has to offer,” Eshaghian said. “I’m not suggesting 100% of the population are doing this, but there are quite a few of such individuals that are here in this country that really want to be part of this society and they pay taxes, so they file tax returns using this tax ID number, and our loan program provides financing solutions for them.”

GreenBox Loans is a non-QM lender that offers a full menu of non-prime products, including five different bank statement products. Eshaghian has been president of the company since 2009, and he’s really seen non-QM take off in popularity over the past four years. The increased interest in the non-QM space is positive from the perspective of getting qualified borrowers into homes, although it seems that acceptance was, and still is to some degree, a reluctant one.

“The broker acceptance has really come about as the pipelines have shrunk. In other words, several years back, I’m speaking with loan officers that said, ‘I’ve got enough business, I don’t need to bother.’ They didn’t even want to take the time to learn. So I think there’s no reason why a loan officer would not want to participate and get into this; the problem is, many of them don’t take the time to really study and understand the product, not only on ITIN, but I’m talking about in general, non-QM,” Eshaghian said.

There’s some wariness still floating about around the non-prime space, but it’s not always because of the parallels with the previous sub-prime market. It’s really due to originators not truly understanding the nuances of the products or the ways in which they can serve the market.

Eshaghian said that’s been one of the biggest things that GreenBox and others in the non-QM space have tried to address and provide education, whether it’s about ITIN loans specifically or non-QM loans in general.

“In the last 10 years, we’ve really moved away from thinking and manual underwriting. That’s what non-QM is about, that’s what ITIN programs are about. You don’t have an automated underwriting system that’s going to make a decision for you. You really have to analyze the characteristics of the borrower and the guidelines and compare the two, and that’s the challenge for the industry because everybody’s gotten so used to doing conventional agency loans, running them through the desktop underwriting and all this other stuff, it’s just been cookie cutter. We’ve become robotic. The overall challenge is not just for ITIN, it’s for non-QM, which is having to step back and actually analyze the borrowers, the characteristics of the loan and understanding what they’re trying to do.”

The ITIN product is more popular than you might think.

It’s used nationwide, not just in markets with a high number of immigrants or foreign nationals. Eshaghian said that when they’ve marketed the product historically, it probably gets the highest number of phone calls of any other product that they advertise, and it’s not something that many lenders have on their books.

It is becoming more common, but just because it’s becoming more available doesn’t mean that lenders know how to handle it properly.

An undocumented borrower may have a job, for example, but because their employer doesn’t know they're undocumented, they may be using a Social Security number that belongs to a friend or family member. So in this instance, the borrower’s ITIN and the Social Security number don’t match. The same may apply when looking at a borrower’s credit history. Quite frankly, it can be a mess.

“We understand this. We know how this works. So there’s a lot of characteristics within an ITIN loan program that are very unique and if you don’t have the expertise you can’t close the loans. Same thing goes with the credit. You’ve got blended credit with the use of ITIN number and Social Security number, so you’ve got credit all over the place, and you’re trying to figure out what really belongs to my borrower,” Eshaghian said.

Industry experts and non-QM lenders alike will tell you that there’s still tremendous growth to be had in the non-prime space, not only from undocumented workers (many of whom already own property acquired through straw buyers, who have been making payments on that property, and who want to become legitimate borrowers), but from self-employed borrowers and investors. As it expands to become more mainstream, however, there’s also tremendous potential that the loans will be mishandled.

Eshaghian said that with an increased need for non-QM, companies are starting to realize that they’re going to “suffer tremendously” if they don’t jump on the non-QM bandwagon.

“You’ve got a lot of shops that are government or agency shops, trying to throw in non-QM products in that mix. We’re a specialist in that area, but a lot of those folks don’t understand that these products really require a separate team, operations, staff, they don’t flow the way that an agency or government loan flows. And I think that what’s going to happen is you’re going to see a lot of these companies really get hurt as a result of the way that they’re doing things.”

Regardless of your market, you might have more people that fit the criteria for a non-QM loan—or an ITIN loan in particular—than you realize.