Immigration reform bill 2013 a much needed boost for the volatile us mortgage industry

Immigration Reform Bill 2013: A Much Needed Boost for the Volatile US Mortgage Industry

Sutherland Banking Insights

Mortgage Servicing in US: In-house or Outsource?

October 2013Page 1

Immigration Reform Bill 2013: A Much Needed Boost for the Volatile US Mortgage Industry Overview The number of undocumented immigrants in the US is estimated to be about 12 Mn in 2012.

Undocumented immigrants may be defined as foreign-born persons who are not US citizens or do not have a legal immigration status. This segment of population has grown significantly over the past few decades, despite efforts to control the flow of illegal migrants, including increased border patrol, sanctions on employers of undocumented workers, and denial of public benefits to migrants.

Undocumented or illegal immigrants are limited in their ability to purchase a home because of lack of satisfactory identification documents, insufficient participation in the financial services industry, lack of a verifiable credit history, their immigration status and others. However, many of these immigrants are eligible in terms of household income, which is sufficient to permit them to purchase a home, if they are provided with a mortgage loan. This report is mainly focused on the implications of the Immigration Reform Bill 2013 on the US mortgage sector.

Immigration Reform Bill 2013 The immigration reform bill – Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 – was introduced by Sen. Charles Schumer in the United States Senate and co-sponsored by the other seven members of the bipartisan group of US Senators, together known as the Gang of Eight, who wrote and negotiated the bill, on April 16, 2013.

The Senate Judiciary Committee held hearings on the bill in April 2013. The bill was voted out of Committee on May 21, 2013 and was introduced in the Senate. On June 27, 2013, the Senate passed this bill. The jury is still out on

whether the House of Representatives will even consider the bill. If implemented, the act will create a pathway to citizenship for illegal immigrants already present in the country, toughen border security, create a guest worker program and boost high-skilled immigration.

The Bill Means a Lot to the Undocumented Immigrants Community Presently, purchasing a home is an extremely difficult task for undocumented immigrants due to their limited identification, verifiable credit history and employment option. But if the immigration reform bill is cleared, undocumented immigrants could submit an application to change their status to "registered provisional immigrant (RPI status)" within 180 days of the law's enactment.

These new RPI status holders can then work with any company or employer and would be allowed to travel in and out of the US. After a decade, those with RPI status would be able to apply to get permanent residency. Moreover, the new RPI status holders would also be eligible to purchase home and contribute to the real-estate market in the US.

“Immigration reform would unleash pent-up demand for homeownership by millions of undocumented immigrants. It would help reestablish homeownership as a driving force in building wealth and accelerate the recovery of the nation's economy.”

– Alejandro Becerra, Former Senior Housing Fellow, Researcher, Author and Recipient of the 2011 HOPE Award

Immigration Reform Bill 2013: A Much Needed Boost For the Volatile US Mortgage Industry

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Unauthorized Immigrants in Numbers

experienced high numbers of unauthorized immigrants in 2007, followed by declines over the next year or two.

Since 1990, the unauthorized immigrant population in the US has more than tripled.

According to Pew Research Centre estimates, the number of unauthorized immigrants in the US is again on the rise post a sharp decline during the recession period of 2007-09. The research estimates suggest that the number of unauthorized immigrants in the US is around 11.7 Mn as on March 2012, up from a recent low of 11.3 million in 2009 (Refer Figure 1).

On further narrowing down the unauthorized immigrants by country of origin, it seems that post-2007, Mexicans reported the sharpest decline. Currently, Mexicans make up about 52% of the illegal immigrants in the US as compared to 57% in 2007. However, the Mexican decline appears to have stopped post 2010. In 2012, 6.05 Mn Mexican unauthorized immigrants were in the US, a decline of about 900,000 from 2007.

The unauthorized immigrant number for 2012 is still on the lower side as compared to the historic high of 12.2 Mn in 2007. The estimate of illegal immigrants is derived largely by subtracting the estimated legal immigrant population from the total foreign-born population.

“We don’t know what caused that decline, but it certainly coincides with the recession. And we can say that the current enforcement practices have not led to any measurable reduction beyond the 2009 period.”

– Jeffrey S. Passel, Senior Demographer, Pew’s Hispanic Trends

Most of the unauthorized immigrants, i.e. 60%, reside in the six states of the US — California, Florida, Illinois, New Jersey, New York and Texas. Of the six, Texas is the only state that witnessed consistent growth without any decline in its unauthorized immigrant population over 2007-11. However, the other five states including the remaining of the US

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Figure 1: Unauthorized Immigrant Population in the US (Mn)

Source: NAHREP

Immigration Reform Bill 2013: A Much Needed Boost For the Volatile US Mortgage Industry

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A USD500 Billion Opportunity for the US Mortgage Industry According to National Association of Hispanic Real Estate Professionals (NAHREP) estimates, if the 11 Mn undocumented immigrants are provided citizenship; it will create a huge opportunity in the US housing economy.

NAHREP estimates about USD500 Bn in sales, income and spending in the US housing market over a period of five-years. Moreover, an additional USD233 Bn in origination fees, real estate commissions and consumer spending associated with homeownership is also expected.

Figure 2 below highlights the expected economic impact of the immigration bill on the housing sector in the US. Figure 2: Unauthorized Immigrant Population in the US (Mn)

How a USD500 Billion Market Was Derived?

The economic impact of the immigration reform bill on the US housing market was arrived at by using the following approach taken by NAHREP. NAHREP has used the statistical data from the US Bureau of Citizenship and Immigration Services to make assumptions and estimates. •

About 6 Mn of the 11 Mn undocumented immigrants are expected to pursue legalization, if the US Senate passes the Immigration Reform Bill proposed in Congress in April 2013

•

Based on historic purchase trends among foreign-born householders, about 3 Mn (i.e. half of the 6 Mn expected unauthorized illegal immigrants who seek legalization), are expected to become home owner and will create a market opportunity of more than USD500 Bn in sales, income and spending into the US housing economy over the period of five years.

Source: NAHREP

Immigration Reform Bill 2013: A Much Needed Boost For the Volatile US Mortgage Industry

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•

Once given a legal status, these immigrants will have an estimated average household income of about USD40,000 and by virtue of which they could afford to purchase a home with a median price of USD173,600 per home in the US

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This new home purchase alone can generate more than USD500 Bn in new mortgages lending over the period of five years. Another USD25Bn can be generated in the form of mortgage origination and refinance income

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Based on current sales commission, an average of 5.5% of sales commissions can be assumed on these home sales, and that would create another USD28 Bn in income within the US housing market

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New home purchases by 3 Mn legitimized immigrants would also create USD180 Bn in additional consumer spending within local communities. This figure was arrived at based on the average of USD60,000 in associated purchases estimated by the National Association of Realtors in 2012

“We don’t know what caused that decline, but it certainly coincides with the recession. And we can say that the current enforcement practices have not led to any measurable reduction beyond the 2009 period.”

– Jeffrey S. Passel, Senior Demographer, Pew’s Hispanic Trends

Outlook Most economists across the globe believe that getting the 12 Mn undocumented immigrants out of the shadows would act as boon to the struggling US economy, and boost tax revenues in the bargain. But the future related to the latest comprehensive immigration reform bill passed by the Senate in June 2013 is looking more likely to end up in the GOP-controlled House (The Republican Party). However, the Republicans probably do not realize or are not aware of the fact that rejecting the bill could do serious collateral damage to the housing recovery, which has already been bleeding hard since the collapse of the housing market in 2008.

However, the core issues related to immigration reform are the rule of law and the fate of illegal immigrants embedded in the US economy. The US lawmakers should not be oblivious to the economic implications of the choices they make, or fail to make, in revamping immigration laws. Last but not the least, it would be really good move for the US economy, because an influx of new citizens means new homebuyers, who can help in bringing stability to the country’s volatile housing market and thus help in the overall economy grow.

Immigration Reform Bill 2013: A Much Needed Boost For the Volatile US Mortgage Industry

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