November 17, 2011

Growing access to capital in Native American communities

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As we celebrate American Indian and Alaskan Native Heritage Month this November, it’s a good time to take a look at homeownership in Native American communities. A special set of circumstances, including the trust status of land in Native American country, have made homeownership historically challenging for many families.

That is why HUD’s Office of Native American Programs created the Section 184 Indian Housing Loan Guarantee Program in 1992. It is a unique program that can be used to purchase, construct or rehabilitate a home or refinance an existing mortgage on a reservation or in a defined area. The program provides 100% reimbursement to private lenders in case of default, loosening access to capital for the community. In its short history, the program has guaranteed some 15,000 loans for a total value of $2.3 billion, and it’s growing steadily as word gets out about the program. While $168 million in loans were guaranteed in 2006, the amount is expected to grow to nearly $500 million by the end of 2011.

“Good news travels fast,” said the program’s director at HUD, Thomas Wright.

The program is available to members of federally recognized tribes looking to purchase one-to-four family homes, in either rural or urban approved tribal communities. The program offers 30-year fixed loans.

Other advantages to using a Section 184 include:

  • Low down payment: 2.25% on loans over $50,000 and 1.25% on loans under $50,000.
  • Low Interest Rates: based on market rates, not on applicant’s credit score.
  • Manual underwriting: the program uses a hands-on approach to underwriting and approval instead of automated decision-making tools.
  • Growing national network of approved lenders: the program’s network of approved lenders includes national companies and local banks. The lenders have also been trained on the unique circumstances of Native homeownership.
  • No monthly mortgage insurance: a one-time 1% up front guarantee fee is paid at closing and can be financed into the loan.
  • Protection from predatory lending: The program monitors the fees that approved lenders can charge Native borrowers. Section 184 loans cannot be used for Adjustable Rate Mortgages (ARMs).
  • Knowledgeable staff: Program staff understand the unique circumstances associated with lending on Native Lands and work with borrowers to achieve homeownership and avoid default or foreclosure.

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