A year ago, I was asked to present a course for MGIC regarding Visa Holder clients. The webinar was meant to introduce to lenders the elements of lending to non-US Citizen borrowers. The attendance of 1000 people was astounding, as was the subsequent training a few months later where we still had almost1000 attendees. Clearly this is a topic of confusion in lending. While most large financial institutions, or those with a global presence, may have a history and a knowledge of this type of lending, other lenders without that backing or resources may struggle. As a result, lenders may be turning away business that is profitable and considered an acceptable risk.
I was shocked by the attendance at the webinar. I suspect it was because of my personal career history. Many years ago, I was a top producing loan originator in the Washington DC area. At that time and still today, that area is exposed to so many different types of buyers from all over the world, that this type of lending seemed normal. I soon realized that for many areas of the country non-US citizen lending had not yet evolved to the level that we experienced in the more transient areas such as Washington DC.
Immigration has been growing steadily in all regions of the country, not just some regions of the country. As such, it is important to wrap our heads and our policies around lending to the segment of this population that is both amenable to our clients and balanced by proper risk. Lenders are realizing that a portion of their client base is likely to be somewhere in the process of asylee/refugee, non-permanent status, permanent status and/or applying for citizenship.
So why is this topic so confusing to lenders? In my opinion there are several reasons.
1. If you get it wrong you have Fair Lending Risk. Too stringent of a policy results in loan denials of borrowers with varying ethnicities or national origin.
2. Lack of a fundamental understanding of the immigration process which causes Fear! If you do not have solid guidelines in place, you have buyback risk or the Grand Daddy of them all…..risk from The False Claims Act.
3. Guidelines from the agencies and investors are cryptic leaving the lenders to figure it out for themselves, which is VERY Risky for any lender. Lenders want to be responsible and follow guidelines, but that is difficult when agency guidance is unclear.
4. Throw DACA into the mix and now we have a real party!
What is a lender to do? As part of my consulting practice, I see many problems with lender policy for non-US citizen borrowers. I hear statements such as “we review those loans on a case-by-case basis”, “none are alike, so it just depends” or my favorite (think sarcasm) “we don’t do those loans”. Confusion over who is and is not an acceptable credit risk is true in the areas of personal loans, small business loans and mortgage loans.
Over the last year, I have had the privilege of assisting many lenders with their non-US Citizen lending policy. Therefore, I thought it would be helpful to outline some “Best Practices” that I have recommended to my lender clients to help them serve their community, maintain profitability and, mitigate risk when considering their lending policies to non-US Citizens.
Step One: Get Solid in Your Knowledge of This Subject!
Before making any policy decisions, there is some work to do. Anyone who is involved in the decision-making process for policy development on this subject needs to be fully educated on the topic prior to even thinking about what the policy should be. Too many people make decisions without a strong background in what needs to be considered. Remember that this policy and the ultimate outcome of your execution strategy will impact Fair Lending and will also affect how your institution is perceived in your community. Done well and your profit and reputational risk are solid. Done poorly, and your profit may suffer along with your reputational risk.
Do NOT Tackle Policy Decisions Without a Proper Education about lending to non-US citizens.
The nuances of lending to those in the immigration system is complex. There are over 100 different types of Visa’s. Some of the Visa types allow a person to work, others do not. Some permit a person to work for a short period of time and others for longer periods. If you have a Visa you are legally permitted to be in the US, but that does not mean you can work or stay long enough to show probability of continued employment, credit history or potential for continued legal residence in the US. A lender must also understand the terminology, Visa types, who may work, how long someone may reside legally in the US and what documentation would be considered sufficient to verify your company’s policy requirements. Unfortunately, this is not as easy as it sounds!
We offer a great course on Working with Visa Buyers, which you can find here. I developed this course because there was no comprehensive training on this subject for lenders, and I was frustrated by the number of lending professionals who were discouraging clients or denying clients due to a lack of education on the subject. The hundreds who have taken the course say they learned a lot. The course comes with a VISA Reference Chart that outlines the Visa types that would generally meet the guidelines of being able to work in the US, legally reside and offer employment that is considered stable with a likelihood of continued employment.
Use Terminology Properly! What is the difference between a non-permanent resident, permanent resident, asylee, refugee, foreign national, green card, etc? Lenders mis-use terminology on this subject too frequently. If you are not adequately educated on Visa types, how the immigration system works, who can and cannot work in our country, who they can work for and the documentation needed to prove this, then you are not ready for prime-time non-US citizen lending or policy development! In the course I developed, we step you through the terminology and provide a glossary with pictures to assist you in proper use of terminology.
Let the Lending Policy Discussion Begin! Once your decision-making team has a solid education about the intricacies of lending to non-US citizens, policy discussions can now occur. In part two, I’ll talk about best practices for discussing the elements your company should consider when developing non-US citizen lending policy.
If you need assistance with your policy development, you can reach me at email@example.com. Our Visa Buyer course is also available for individual or group purchase. Stay tuned for Part Two by subscribing (for free) to our blog at: www.fairlendingdiversity.com