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As recently as a dozen years ago, lenders did not make mortgages on American Indian reservations.
The General Accountability Office, an arm of Congress, could find just 91 mortgages made on Native homelands during a five-year period in the 1990s.
A determined effort to end the effective redlining of Native homelands began in the second half of the 1990s, with many promises made and some actual progress achieved. However, much of that progress seems to have evaporated in the implosion of the mortgage market and the ensuing credit crunch of the past several years.
Mortgage lending to Native people both on- and off-reservation has shriveled in recent years, and the market for mortgages on U.S. reservations, an area comparable in size to the state of Utah, remains at an average of about one per tribe per year.
Totals (on- and off-reservation) drop 67 percent
Since the market high in 2005, mortgages to Native people, probably the most underserved population in the country, have fallen by more than two-thirds, according to 2008 Home Mortgage Disclosure Act data, which measures loans both on- and off-reservation (and doesn’t break out the two categories).
Last year, just $17.5 billion in mortgages was extended to Native people (American Indians, Alaska Natives, Native Hawaiians and Pacific Islanders), down from $53.7 billion in 2005. American Indians and Alaska Natives in particular were hurt the most. At $8.6 billion, their volume was eclipsed by $8.9 billion in mortgages to Native Hawaiians and Pacific Islanders (mainly Natives of Guam and American Samoa), a much smaller cohort.
Why this enormous drop, much larger than the general market falloff and larger than the drops for other minority populations? The cratering of the subprime mortgage market has something to do with it, as Native people were targeted (for good and bad) by subprime firms that have since vanished. But subprime lenders also targeted other minority populations, whose volumes, while hurt, didn’t fall off as far.
Mortgages on reservations hard to do
Numbers of mortgages on Indian reservations are hard to come by. Indian Country Today can quantify only 258 for fiscal 2009, though the total must be somewhat higher.
Mortgage lending on Native homelands is a hard thing to do. But it can be done, and at one point there was a lot of lender interest in solving the problem.
Beginning in the 1990s, a lot of energy came together to extend mortgages to American Indians on their reservations, through people, nonprofits and lenders who acted with passion and purpose to try to improve some of the worst housing conditions in this country.
Issues of poverty and culture, racism, an almost total lack of financial and real estate infrastructure (no realtors, home builders, closing attorneys, title insurers, bank offices and all the other infrastructure of mortgage lending) and a knotty legal problem over how to mortgage land that technically belongs to the federal government, had combined to completely stifle home finance in tribal areas. How much land is it? Homelands range in size from a few acres to 27,000 square miles, and if cobbled together would be larger than the state of Utah.
During one five-year stretch (1992 – 1996), the GAO could find only 91 private mortgages extended on the 300 or so reservations in this country, home to more than half a million people belonging to more than 550 tribes. And those were made to members of just two tribes, the Tulalip and Wisconsin Oneida, which had relationships with local banks. Knowingly or not, lenders had drawn a bright red no-lending line around this enormous area.
By 1999, lenders had improved on that to close a total of 471 mortgages in Indian areas, but that was still an average of less than one per tribe, according to a task force reporting on the issue to former President Bill Clinton. Ten years later, the situation remains roughly equal.
A home being constructed on the Flathead Reservation in Montana shows a fairly typical building plan.
Test case: Navajo Nation
The Navajo Nation, the biggest reservation in the United States, which is the size of West Virginia and sprawls across Arizona, New Mexico and Utah, became a testing ground for lender initiatives in the 1990s, with both successes and failures to show for it.
Mortgage summits held at the Aneth Chapter House in the Utah section of the Navajo reservation in June 1994 and Montezuma Creek, Utah in September 1995 laid the foundation for an arduous effort that took three years to close a loan despite the eagerness of an impressive array of nonprofit organizations, private lenders, tribal entities and government agencies to make it happen.
And it took a full five years before the first private mortgage (as opposed to government) closed in the fall of 1999. But meantime, a scrappy locally-based nonprofit had rolled up its sleeves and began an effort that has resulted ultimately in hundreds of loans.
Following the first summit, the Navajo Nation and Fannie Mae entered into a two-year negotiation to allow the development of a secondary market for mortgages on the reservation. (In a secondary market transaction, an agency like Fannie Mae buys a loan from the original lender, in effect giving the lender enough money to make another loan.)
There was a lot of ground to cover. First was the status of the land to be mortgaged. The federal government technically holds the land “in trust” for either tribes or individual Indians, who were allotted land in the 19th century by the Dawes Act. By law, the land cannot be mortgaged without the approval of the government, through the BIA, whose traditional slowness in completing TSRs (Trust Status Reports) has been one of the many barriers to Indian mortgage lending.
In recent decades, the federal government has tried to remedy this restriction, which in essence denied Indians access to credit available to potential homeowners everywhere else in the country. In the early 1980s, it introduced the Federal Housing AdministrationSection 248 mortgage, which guaranteed lender outlays to Indians living on reservations. But the program closed only a handful of loans (18 in FY 1987, and 11 in 1989) and so Congress tried again in 1992, including the Department of Housing and Urban DevelopmentSection 184 Indian loan in the Housing and Community Development Act of that year.
Need is great
A $180,000 loan was part of the financing for this multi-family project at the San Juan pueblo in New Mexico.
The need for more housing in Indian country is undisputed. The National American Indian Housing Council, has estimated current need at more than 200,000 units. On the Navajo, at the time of the summits, the Federal Home Loan Bank of Seattle (which sponsored them, Utah being in its jurisdiction) estimated that 20,000 Navajo families were in need of homes. Nearly one-third of its existing homes needed major rehab work, and more than half lacked running water, electricity or telephones.
Besides the trust status of Navajo land, there was a difference of cultures. Each of the players in the deal had differing things that were of paramount importance to them: Sovereignty for the Navajo and retention of their land base, and being able to perfect a security interest to be able to foreclose, if necessary, on Fannie Mae’s part.
Eventually, Fannie Mae and the Navajo came to a deal where the Navajo would be allowed to assume the mortgage if a tribal member defaulted. This way, the tribe would not lose any more of its land base. And, in a victory for Navajo sovereignty, the tribe did not grant a limited waiver of sovereign immunity. But it did issue a judicial ruling that Fannie Mae could perfect a security interest on Navajo trust land, which gave the agency the ability to foreclose on homes through the tribal courts, if necessary.
The Fannie Mae/Navajo agreement was announced at the U.S. Capitol in June, 1996, but it was to take another three years before a conventional loan would close.
In the meantime, the HUD 184 mortgage, which guaranteed all lender outlays, was implemented in 1995 and quickly outstripped the impotent FHA 248 loan. The HUD 184 was designed to act like a “conventional” (private) loan. Initially, it gained acceptance in the non-reservation “Indian areas” where there is little or no trust land – Alaska and Oklahoma. Here, much of the property in Indian areas has “fee simple” status, the same as anywhere else in the country, making it much easier to mortgage.
But eventually, the HUD 184 began to be used on trust land as well, and early in 1999, the program passed 500 mortgages. By the middle of 2000, the HUD 184 had closed 835 mortgages, for a total of $82 million, including about 300 on trust land. Since then, volume has grown more than tenfold.
A second key government program has proved to be successful – the Department of Agriculture’s Rural Housing Service Section 502 (homeownership) and 504 (rehab) loans; 148 of these were made in Indian country during 1999. Many of the loans closed on the Navajo have come through this program, which can either make a direct outlay of money, or guarantee a lender’s outlay.
NAHASDA changes the rules
One of the most significant bills ever passed in Congress affecting Indians was voted in on the last legislative day of 1996. The Native American Housing Assistance and Self Determination Act, championed by Rep. Rick Lazio, R-N.Y., was designed to do something radical in Indian housing finance, just at the same time HUD 184 was gathering steam and the move to conventional lending was getting off the ground.
What NAHASDA did (partly in response to findings of a 1991 Congressional task force on Native housing issues), in one breathtaking swoop, was to end the role of HUD as the paternal father of Indian tribes, doling out assistance money to Indian Housing Authorities through programs like Mutual Help, authorized by the 1937 Housing Act.
Instead, assistance would now come in a block grant that tribes or their designated housing entities could use as they wanted. NAHASDA was an acknowledgment of tribal sovereignty (the “self-determination” part), and an encouragement to leverage those dollars through partnering with private companies, like mortgage lenders.
Along with this shove out into the real world of finance, Uncle Sam also increased tribal housing assistance significantly in the aggregate, going from $485 million in 1997 to more than $600 million this year (with a dip during the Bush administration).
Banks and lenders, usually as part of rural or affordable housing or Community Reinvestment Act outreaches, started to become interested in Indian country lending. Bank One, (now part of Chase), Norwest Mortgage (now Wells Fargo Home Mortgage), and Bank of America, Washington Mutual Bank (now part of Chase), and Countrywide Home Loans (now part of Bank of America) announced their willingness to participate. PMI Mortgage Insurance Co. also got involved, first through some programs in Oklahoma and later with a commitment to insure $100 million in Indian mortgages.
Key to the success of the ventures though were nonprofit intermediaries that could bridge the cultural gaps between tribes and lenders. These have included the Enterprise Foundation, Neighborhood Housing Services, and Neighborhood Reinvestment Corp.
NRC played a key role on the Navajo, which found itself bogged down both with Fannie Mae on the conventional side and with HUD on the government side. NRC helped found the Navajo Partnership for Housing, now based in Gallup, N.M., which began an aggressive movement to qualify Navajos for home ownership, and then to find loans for them.
NPH had gotten the wheels in motion, and had even closed its first couple of loans (the first, a rehab loan, went to Sandra Yazzie of Window Rock, Ariz. in early 1998), when President Clinton gave it some nationwide publicity in 1998 by announcing a “One Stop” Mortgage Center concept for Indian trust lands, naming NPH one of two such centers.
Total financings to 28 NPH borrowers as of June 2000 passed the $2 million mark, and as of 2006 the nonprofit was approaching 250 financings for $18 million.
The first conventional closing
Finally, in 1999, five years after the first summit and three years after the Fannie Mae agreement, Ron and Karen Maldonado closed the first-ever conventional mortgage on the Navajo on their home in the Goat Springs region of Fort Defiance, Ariz. Fannie Mae bought the mortgage, which was extended by Suburban Mortgage of Albuquerque.
The report on Clinton’s “One Stop” program gave a breakout on “Indian area” lending in fiscal 1999 (this is basically trust land plus the private property or “fee-simple” land in Oklahoma and Alaska). It found 165 HUD 184s, 11 FHA 248s, 40 RHS 502 direct loans, 108 RHS section 504 rehab loans, 31 loans through the Department of Veterans Affairs, 16 conventional loans through Fannie Mae, and 100 through mortgage agency Freddie Mac on fee-simple land in Oklahoma, for a total of 471.
Some of the players involved stood up in church and pledged large amounts to develop Indian mortgage lending. Fannie Mae, for instance, committed to financing $350 million in Indian country mortgages nationwide in this decade as part of a $2 trillion affordable housing effort. The Federal Home Loan Bank of Seattle, quickly followed with a commitment to buy $100 million in NAHASDA Title VI loans nationwide (the Title VI program, however, has been far less active than the HUD 184, with just 14 loans closing in a recent two year period). PMI made its own $100 million commitment.
These heady initiatives, combined with the real estate and mortgage bubble of the middle of this decade, pushed mortgage lending to Native people (both on and off reservation, the HMDA numbers do not differentiate) to more than $53 billion in 2005.
Subprime targets Indians
But a new and less beneficial influence began to be felt in Indian country: Subprime lenders who targeted Indians as part of their outreach to underserved markets that could be charged more for riskier loans.
A study by the National Community Reinvestment Coalition, for instance, found that in 2000, Indians were twice as likely (26.5 percent) to get subprime or manufactured housing loans as the national average. And in some states, like New Mexico (78.8 percent) and South Dakota (39.1 percent), the percentages were far higher.
Subprime lenders and finance companies began to turn up in the top ranks of lenders to Natives in the HMDA rankings. In 2004, for instance, subprime lenders Argent and Ameriquest Mortgage, New Century Financial, and MortgageIT appeared in the top 10 ranking. Lehman Brothers Bank, later called Aurora Bank, an alt A/nonconforming lender, was in the top 10 as well, and a substantial amount of Wells’ Native originations came through its finance unit, Wells Fargo Funding. Countrywide Home Loans, consistently the top lender to Natives throughout this decade, made an ill-advised push into subprime lending.
Beginning in 2007, firms like Argent/Ameriquest, New Century and MortgageIT began to go bust in huge numbers. And loans to Natives began to fall: $51.6 billion in 2006, $31.6 billion in 2007, $17.5 billion in 2008.
Success stories
First Mortgage of Oklahoma City remains aggressively involved in lending to Oklahoma tribes (though it has discontinued efforts outside its home state).The HUD 184 program for Natives had closed more than 8,000 mortgages as of this summer (though 80 percent of them are for Native people living off-reservation). Wells remains a top lender to Native people, with $1 billion loaned to Indians and Alaska Natives and another $1 billion loaned to Native Hawaiians and Pacific Islanders last year, and Chase posted similar numbers. Tribes and nonprofits like the New Mexico Mortgage Finance Authority remain committed to assembling financing from multiple sources, including the Federal Home Loan Banks, to cobble together Indian housing initiatives.
But the groundswell of lenders that started to bring mortgage finance to Native homelands a dozen years ago obviously is in broad retreat in the current credit crunch.
The HUD 184 remains the most successful Indian country mortgage program. In fiscal 2009 through August (the government’s fiscal year ended Sept. 30), 197 mortgages had been closed on tribal trust land, and 61 on land allotted to individual Indians, for a total of $36.4 million.
Program totals through August show 1,869 loans made on trust land, about 15 percent of all HUD 184s, for total financing of $192.4 million.
Requests to Fannie Mae and USDA for their 2009 Indian mortgage numbers were unanswered as this analysis went to press.
As a new decade begins, it will be interesting to see how many Indian country mortgages GAO will be able to tally the next time they do a five-year survey.
WASHINGTON — Fourteen counties in the 23rd Congressional District — including Brewster, Jeff Davis, Culberson, Pecos, Reeves and Terrell in Far West Texas — received a combined $30 million in direct and guaranteed loans for rural housing.
The funding, administered by the U.S. Department of Agriculture, comes from the American Recovery and Reinvestment Act, also known as the stimulus.
Money going to the following counties includes:
County Total amount # of loans Jobs created or saved
Bexar $16,213,704 120 201
Brewster $568,623 5 7
Crockett $71,050 1 1
Culberson $202,132 2 3
Dimmit $224,450 2 3
El Paso $3,770,268 37 47
Jeff Davis $111,224 1 1
Maverick $5,928,141 47 76
Medina $899,480 8 11
Pecos $1,135,696 13 14
Reeves $62,244 1 1
Terrell $169,938 2 2
Uvalde $805,543 9 11
Zavala $88,500 1 1
Total $30,250,993 241 365
“While the economic downturn affected all of us, rural residents were hit particularly hard,” said U.S. Rep. Ciro D. Rodriguez, whose 23rd District includes a substantial rural population. “This program is a life-saver for so many rural residents who have been unable to purchase their own homes. Once again, we are seeing that the Recovery Act is working to put people back on their feet, create and save jobs and stimulate our economy.”
Agriculture Deputy Secretary Kathleen Merrigan said more than 84,000 rural families have already become homeowners as a result of the Recovery Act. The number of loans nearly doubled from FY 2008 to FY 2009, due in part to stimulus dollars.
The USDA Rural Development uses Recovery Act funding to offer guaranteed and direct single-family housing loans to eligible rural residents.
Down payments are not required for direct and guaranteed loans, and payments for direct loans are based on a borrower’s income. USDA uses strict underwriting standards to assess each borrower’s credit, income and cash flow. As a result, this single-family-housing loan program has a low delinquency and default rate.
Funding for direct home loans is still available. For information on how to apply for USDA homeownership or rental housing assistance, contact any Rural Development state or area office. A list of these offices is available at www.rurdev.usda.gov.
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