In Part One of “Lending to Non-US Citizen Borrowers” I discussed some of the critical considerations and technical understanding that needed to occur to have a vigorous discussion around policy. If you missed Part One you can access it here. In Part Two, we’ll dive into the topics that should be considered when developing your company guidelines on this subject.
Do not set up your policy based on Visa Type!
To do so increases your fair lending risk. You want to base your guidelines on factors that affect a person’s ability to pay back a loan, just like any of your lending guidelines. The only difference with non-US citizen lending is that you need to verify that a Visa’s conditions meet your conditions.
Visa status holders are likely working through the permanent resident or citizenship process. Understanding how this process flows makes your policy development precise and less cryptic. Visa buyers can be in various stages of the process of one type of Visa or various stages in applying for other types of Visas, permanent residency or citizenship. Saying that your company only lends to H1 Visa holders would exclude clients that are just as qualified based on your loan criteria. Variations of Visa type may also occur based on Geography, which means that your company will need to understand your lending area and the needs of that community before policy development begins.
My advice is to keep it simple and focus your company policy on the file attributes not the Visa type.
Guidelines should be built around the loan criteria that will be acceptable risk to your company.
Your guidelines should mirror the same types of financial standards that you require for US citizens. After all, you are in the business of lending money with an expectation of being paid back. Borrowers paying your company back, is how you earn income. Over the years you have learned what types of income, credit, assets, employment, collateral, result in the likelihood of having a loan paid back to you. Use those as a model for policy development versus Visa type. Visa type only indicates a person’s ability to work and/or live in the US, not whether or not their income history or income type is sufficient. That criteria is based on your lending guidelines. You will notice that the agencies and investors build their lending criteria the same for US vs. non-US citizen with regard to employment, income, credit and assets. Follow their process as it is likely they have put a lot of time, effort, money and legal opinion into their guideline development. Notice also that when the issue of a non-US citizen is mentioned, they refer back to verifying the ability of the borrower to work and live in the US, not what Visa type is or is not acceptable.
Include Representatives From Your Field Staff
Too many policy decisions are made in the “Ivory Tower” without the input of those who are in their markets every day. The people who are in the field each day bring a perspective that should always be considered. I’m not talking about the Executive Team member that runs sales. I’m talking about the actual practitioner in the field who is aware of present market challenges and conditions. Their input will save you a lot of time and effort and you will both learn from each other.
Let The Discussions Begin!
Following are some suggested topics to get the conversation started. This list is not an all-inclusive, but it will help you begin the dicussion to build the framework around your policy.
Work and Residency Status
Determine your base policy for working with non-US Citizen Clients.
- Non-US Citizens are permitted
- Must Legally Reside in the US
- May Legally Work in the US
- Has a Social Security Number
- Has Employment in the US that meets established loan criteria?
- How will Delays in Processing information at the USCIS level will be handled?
- How Will the Company QC/Verify Status?
- What Documentation is Required to Verify Status?
Income Requirements -If these do not mirror your guidelines for US Citizen borrowers you may want to consider your business justification for that.
- Types of Employment [i.e. Full-time, Part-time, Seasonal, Student, Sponsored]
- Types of Income
- Length of Income
- History of Income
- Probability of Continued Employment
- Determination of what is a credit history. For instance, do you allow non-traditional credit or only reportable credit?
- Credit Scores
- Payment History that is acceptable to policy [i.e. US History only, History from another country]
- Tradelines Acceptable
- Allowed Delinquencies, defaults, collections (medical vs. non-medical)
- What Are Acceptable Forms of Assets?
- Acceptable Gift Types
- Seconds or Grants
- Pooled Funds
I cannot think of many reasons why this would vary from normal policy, but you should at least consider it. For instance, there have been issues where zoning needed to be determined if multiple families are on the application and will be occupying the residence. Of course, that should also be a consideration for US citizen borrowers as well.
First Run, Second Run, Third Run, Repeat:
Once you have your policy in place, train hard! To avoid lost loans, consumer complaints and fair lending issues, you want your staff to be on solid ground when it comes to working with non-US citizen borrowers. Sometimes sales staff are afraid of these types of loans because they view them as “too hard”. Great policy and training will smooth that out and prevent “discouragement” to apply. Finally, monitor your policy to see how it is working in each of the communities you serve. If you see areas that need more detail, add it. Alternatively, if you find that certain parts of the policy are too liberal and causing you buybacks or poor payment history, then gather your empirical data to change your guidelines and justify that change. Like all lending policy, your non-US citizen policy will continually require revision.
If you need assistance with your policy development or other Fair Lending issues, you can reach me at email@example.com.