New Door Opens for Immigrants

Leonardo Simpser has blunt advice for home buyers considering a funny-money subprime loan requiring no documentation: Don't!

"If you can't afford to buy a house," he says, "don't buy a house."

And definitely don't sign up for a mortgage that promises to make the unaffordable affordable.

Simpser holds a key position in the U.S. mortgage market. He is managing director of the Hispanic National Mortgage Association, a major new funding channel connecting Hispanics and people from other communities with Wall Street and the global capital markets.

Hispanic first-time buyers not only constitute a fast-growing segment of the market, but also can be among the most vulnerable to curveball pitches from subprime mortgage lenders and brokers. Many Hispanics, especially recent immigrants, have low credit scores -- or no scores at all -- and appear to be less creditworthy than they really are, Simpser said.

They often don't have credit cards or checking accounts. For many, their main credit-related activities -- rent payments, utility payments, wire transfers to relatives in other countries -- are never reported to the national credit bureaus. Their income patterns are also frequently different than those of other applicants. Many have multiple employers, multiple income earners in the household and a significant portion of their income in cash.

Loan officers often don't look past the credit scores, which are likely to be artificially depressed because of the applicants' nontraditional credit histories. If they want to buy a house, applicants are told, the only way is to sign up for a subprime mortgage with high fees, payment-shock rate resets and crushing prepayment penalties.

The HNMA, which is based in San Diego and has joint venture-funding relationships with Deutsche Bank and Wells Fargo Home Mortgage, exists to "change this pattern and produce better products and results" for Hispanics and others who get unfavorable deals under the current system, Simpser said.

The company's research and development division, for example, has created the first culturally sensitive electronic application evaluation system: the Hispanic Automated Underwriting System. The system enables private lenders to "see through" nontraditional credit and income patterns quickly and give additional weight to on-time payment performance in rents, phone bills, utility accounts and a variety of other credit indicators, some of which are in proprietary databases.

This underwriting system eliminates the need for time-consuming manual underwriting of nontraditional applicants and allows lenders to underwrite borrowers with multiple income sources and no Social Security numbers. Lenders using the software typically can close and sell their mortgages to HNMA Funding, which provides a secondary market for such loans.

HNMA Funding has a $500 million revolving warehouse credit line with Deutsche Bank. It has funded about $300 million in new loans, according to Simpser, and its target is $5 billion of nontraditional mortgages per year.

What sort of loans do borrowers with unusual income and credit patterns obtain through this underwriting? You might assume they would have some unusual features, but they look very traditional: either 30-year, fixed-rate loans or five-year "hybrid" adjustable-rate mortgages, whereby the rate and payment are fixed for the first 60 months, after which the rate is adjusted annually. Although the program is geared toward Hispanics and other immigrants, it carries no ethnic restrictions.