MONTEREY, Calif.–The politics around providing loans to undocumented, illegal aliens may be divisive, but the return on and the performance of those loans is anything but, according to one person.
Eric Orellana, CEO of Communidad Latina FCU in Santa Ana, Calif., said what’s known as ITIN lending, or loans to people who have individual tax identification numbers or other forms of identity, can be a critical lifeline not just for certain membership populations, but for credit unions themselves.
Speaking to the REACH Conference hosted by the California and Nevada leagues here, Orellana said the loans are not a “handout, but a hand up.”
He noted many immigrants with ITINs need them to pay taxes and file returns. But ITINs are not legal documents for employers to use in determining whether a person can be legally hired, so many illegal immigrants borrow someone else’s Social Security number in order to work. Ironically, he said, as CEO of Communidad Latina CU, he even received a notice from the IRS that someone else was using his number.
Orellana said the credit union also accepts as ID Consular Matricula cards and passports.
What’s Important to Know
“It’s important to know if they have an ITIN number and are working somewhere, they are using what we call in our credit union a working Social Security number,” Orellana said. “An ITIN is about inclusion; it’s about helping those who need the most help. There are a few companies that provide ITIN loans to general populations, and the lowest rate they have is 34%. I’m actually glad they exist. Their other option is a payday lender at 200%-400%. This is where we can come in as credit unions and make a difference.”
Orellana pointed to a Filene pilot (see separate story) of 13 credit unions involved in an ITIN lending program that did $27 million in loans that posted ROA above 3%.
“ITIN loans are not just the right thing to do, but right for the credit unions as well,” he said.
Irony Around Delinquencies
According to Orellana, Communidad Latina’s official loan-to-share ratio is 72%, even though it’s over 100%. He said 50% of the CU’s members have a household income under $25,000, and 90% of its member households have incomes below $50,000. The CU works with all members to attempt to install a savings habit, even if it’s only a few dollars per week.
Communidad Latina has non-member deposits from several large CUs that it uses to fund the ITIN loans, which yield 7.92% with a delinquency rate of approximately 0.5%.
Interestingly, Orellana noted, “Ninety percent of the lending we do is to people with ITINs, the undocumented population. The 10% of the loans made to citizens or people who are in the U.S. legally cause 80% of the losses.”
Word of Caution
Orellana said his credit union does risk-based pricing, but he urged caution. “Be careful if you are going to isolate ITINers from other loan products. ITIN is not a product; it’s different segment and shouldn’t be underwritten any differently than other members,” he said.
To verify income, Communidad Latina contacts the individual to confirm age and place of birth.
Responses to Questions
Orellana responded to a number of questions from his audience, including:
- Does the CU make home loans to undocumented immigrants? For most, said Orellana, a home is an unaffordable dream. But it does have a small number of members who may qualify, including a number of small business owners. One member who owns a tamale truck is operating an additional day per week with every single dollar from that day going to a down payment on a home. Orellana called the member a “test subject,” and that if the loan is made the CU will have to be participated out and it will need to remain on every CU’s books for the full term, as it can’t be sold.
- How do you get board members to begin a conversation around ITIN loans? “For some board members it will be uncomfortable,” said Orellana. “Some view the undocumented question through a different lens.”
- Has Communidad Latina shared its program with other CUs? Yes, said Orellana, but with a caveat: his is a small CU with five people operating out of a 185-square-foot office, so it doesn’t have a lot of extra resources.
- Does the CU have concerns over the Increase in risk due to raids by ICE? According to Orellana, after one recent ICE crackdown its lobby was empty for three weeks, as were the businesses around the CU. “There is always a risk an individual might be deported. We had one member who had become delinquent; we thought it was a skip. The day of the board meeting he comes into the office and says, ‘I’m so sorry, I was deported, but I’m back. These folks pay. They don’t know there is an option not to pay.”