An increasingly popular mortgage concept for immigrant home purchasers would be made illegal under the terms of a new bill introduced on Capitol Hill. The concept is known as "ITIN"-based lending -- mortgages that use Individual Tax Identification Numbers issued by the IRS in lieu of Social Security numbers.

The IRS provides ITINs to immigrant workers who are earning income, want to pay federal taxes, but do not yet have a Social Security card. Growing numbers of banks and mortgage companies are using ITINs as part of their programs to assist "emerging market" borrowers who have solid and stable incomes, but non-traditional credit and documentation.

According to mortgage insurance company MGIC Investment Corp., ITIN-based mortgages currently are being issued in 40 states, primarily by community banks and smaller lenders. A few large national lenders participate in programs with community groups to extend ITIN loans to qualified applicants. MGIC participates in many ITIN home purchases by insuring lenders against possible loss in the event borrowers default.

Geoffrey F. Cooper, director of emerging markets for MGIC, says home buyers using ITIN-based mortgages perform exceptionally well -- "like A-credit borrowers" -- in part because MGIC's underwriting standards are strict. Borrowers must present documentation of two years of income tax filings, two years of stable employment and residence, and other evidence that they are good credit risks.

However, under a new bill introduced by Rep. John T. Doolittle (R-Calif.), ITINs would be banned from all home mortgage lending. Under his legislation, HR 480, the federal Truth in Lending Act would be amended to require all mortgage lending applicants to have valid Social Security numbers.

According to Doolittle, undocumented immigrants often are here illegally, and the "government should not be in the business of creating incentives to encourage illegal behavior. Nor should companies be permitted to reward those individuals in clear violation of our laws."

Tim Sandos, president and CEO of the National Association of Hispanic Real Estate Professionals, called Doolittle's plan "the equivalent of trying to drive a tack with a sledge hammer." Most of the 7 to 8 million potential home purchasers affected by the bill, said Sandos, are immigrants in some phase of the U.S. citizenship process.

Sandos's organization -- comprised of thousands of Latino and non-Latino realty agents, mortgage lenders, home builders and others -- conducted a study that estimated that ITIN-based lending could add $44 billion in new mortgage originations, and could open the doors to home ownership for large numbers of immigrants from diverse countries of origin.

Most ITIN holders "are not illegal," said Sandos. "They are undocumented. The government knows exactly who they are and where they are." By definition, they are earning incomes and paying taxes.

Sandos said requiring a Social Security number to qualify for a home mortgage could also adversely affect large numbers of foreign buyers from Europe, Asia, and South America, who purchase residential property in the U.S. as investments or for periodic occupancy, in places such as Orlando, Houston, California and New York.

Foreign governments might clamp new restrictions on Americans' rights to purchase real estate abroad, said Sandos, in retaliation against the mandatory Social Security card rule. That, in turn, would hurt American real estate agents and other real estate professionals who serve that significant segment of some local markets.