From the WSJ:

Unlikely Mortgage Winner
Illegal-Immigrant Loans
Have Been Solid Bets;
Threats Are Looming
By MIRIAM JORDAN
October 9, 2007; Page C1

Despite the downturn of the mortgage market, a type of home loan has remained surprisingly sturdy: one extended to illegal immigrants.

Now, the question is whether these loans will continue to hold up. A number of factors — including a possible government crackdown on illegal workers and a slowdown in job prospects for undocumented laborers — threaten the ability of these borrowers to keep paying. And there are signs of a slowdown as some lenders have raised the interest rates they charge because of the recent mayhem in the credit markets.

Known as ITIN mortgages because applicants must have an individual taxpayer identification number, the fixed-rate loans are designed for immigrants who can prove they are creditworthy and pay taxes even though they don’t have legal permanent residency in the U.S.

The mortgages represent a fraction of the $2.8 trillion mortgage market. But they are a bright spot in today’s gloomy mortgage industry.

For loans more than 90 days in arrears, ITIN mortgages have a delinquency rate of about 0.5%, according to independent estimates. That compares with 1% for prime mortgages and 9.3% for subprime mortgages extended to those with spotty credit histories.

Many lenders who have sought this business remain bullish.

“Our default level is almost zero,” says Scott Hastings, director of marketing for Citizens Home Loan Inc., a Charlotte, N.C.-based lender that is active in 33 states. The bank has been originating ITIN mortgages for almost two years, and the loans now make up about 20% of the institution’s mortgage business. “It’s an absolutely promising market. These Hispanic families will pay their mortgage before anything else.”
…
A Department of Homeland Security plan to crack down on employers of illegal immigrants is giving some banks that issue ITIN mortgages the jitters. The new policy, which has been delayed by a court challenge, would force employers to terminate workers whose Social Security numbers and names don’t match. Those that don’t comply would face stiff penalties or criminal prosecution.

Only one of 120 homes financed by Mitchell Bank in Milwaukee, an ITIN-mortgage pioneer, has gone into foreclosure in seven years. But, “if these immigrants start to lose their jobs, they may have trouble paying their loans,” says James Mahoney, chairman of Mitchell Bank. “That would severely hurt the bank.”