How immigrant investors can help end the housing crisis

We all know the depressing statistics - housing prices have fallen 33 percent since the housing bubble burst in 2008. This is an even greater decline than the drop in market value during the height of the Great Depression. And while house prices continue their slide, four out of five new mortgages require a down payment of at least 20 percent, putting home ownership out of the reach of most Americans. Almost five million households are either in foreclosure proceedings or are perilously close.

To address this problem, United States Senators Chuck Schumer, Democrat of New York, and Mike Lee, Republican of Utah, recently proposed legislation (S.1746) that is a step in the right direction. But it doesn’t go far enough, and the benefits are much too limited to attract the volume of foreign investors needed to make a real dent in the crisis.

The problem is that the Schumer-Lee bill fails to award what foreign national investors want: permanent residence status. Instead, their proposal would bestow a special three-year, renewable, temporary visa permitting the investor and his immediate family to reside in the United States so long as he purchases a residential property for at least $500,000 in cash and agrees to live in it for at least 180 days each year.

But what if the investor doesn’t want to stay here that long? Foreign nationals can already buy real estate here and remain for many months without the need for the new visa that the Schumer-Lee bill would award. Surely it’s an unfair burden to require someone to remain here longer than he wishes, especially after he has invested $500,000 in cash in the United States economy to buy a house or apartment.

Most problematic of all, the Schumer-Lee proposal isn’t likely to attract very many investors unless it provides the real benefit they want - Lawful Permanent Residence status. Having LPR status permits non-citizens to remain in the United States forever, provided certain conditions are met. It also permits the investor and his family members to engage in employment. And LPRs who have held that status for at least five years become eligible to apply for citizenship in the United States.

Any bill that is serious about attracting substantial foreign capital to help solve our housing crisis needs to award LPR status as the prize.

My suggestion is that we try a three-year pilot program in which 100,000 foreign nationals would be allowed each year to make cash purchases of at least $500,000 in distressed properties in return for a grant of permanent residence to them, their spouses and minor children. In return these investors would provide $50 billion in revenue to financial institutions now holding mortgages on these properties. Upon closing, the investor would be eligible to apply for permanent residence. Investors and their immediate families would be able to come and live in their properties and earn a living in the United States within several months of the closing.

This would not be the first time immigrant investors have been able to become permanent residents though their investments. Since 1990, the United States has awarded LPR status to immigrants in return for investments of at least $1 million here in businesses that they directly manage and that create at least 10 jobs for U.S. workers.  That provision was broadened to several years later to allow for investments of $500,000 that create at least 10 jobs in rural regions or areas of high unemployment. Though the overall usage is still modest, those investments grew by more than 90 percent in 2010, and usage continues to increase as word spreads through the world of this generous opportunity to acquire LPR status.

Despite its many problems, America is still viewed throughout the world as the beacon of hope and opportunity. Class, ethnic and religious distinctions matter little to most Americans. And we still have economic and educational opportunities that make us the most attractive option for immigrants around the world. Many of those immigrants are affluent and would be willing to invest in a foreclosed property in exchange for becoming permanent residents.

This proposal would generate $50 billion each year for the banks and other lending institutions now holding the mortgages. Congress should also require that each lending institution making a $500,000 sale to an immigrant investor must loan a certain percentage of the proceeds to new borrowers, who now find credit so hard to obtain. 

Meanwhile, neighborhoods being decimated by abandoned, deteriorating houses would be reinvigorated by having owners with a financial stake in maintaining them. This in turn will spur further job growth by the range of services needed to maintain these houses.

At the end of the day we will have 300,000 new immigrant investors willing to pay for the privilege of becoming permanent residents by becoming our home-owning neighbors. Since we have a commodity that people want and a distressed housing stock that continues to depress the economy, this is a perfect match. It won’t solve our economic crisis, but it can be a major tool in the recovery efforts.

Ted Ruthizer is the co-chair of the Business Immigration Group of Kramer Levin Naftalis & Frankel LLP and a Lecturer in Law at Columbia Law School.