Government Loan Programs
Government Loan Programs for the Property
Barriers to Homeownership in Indian Country.
Much of the land in Indian country is held in trust by the U.S. government for the benefit of a particular tribe or individual Native Americans. Land held in trust for a tribe cannot be mortgaged, and land held in trust for an individual must receive federal approval before a lien is placed on the property. As a result, tribes, IHAs/TDHEs, and individual Native American families have historically had limited access to private mortgage capital.
At the same time, demand for homeownership opportunities has steadily grown. Many families in Indian country have worked hard to achieve success, and now want to own a home of their own. Other Native Americans currently live away from traditional Indian lands and seek to return home to raise their families.
The Section 184 Loan Guarantee Program
In 1992 Congress created a federal program specifically designed to address the lack of mortgage capital in Indian country. Under the provisions of Section 184 of the Housing and Community Development Act of 1992 and as amended under the provisions of the Native American Housing Assistance and Self-Determination Act of 1996, the U.S. Department of Housing and Urban Development (HUD) was authorized to guarantee loans made by private lenders to Native Americans, IHAs/TDHEs and Tribes.
The Loan Guarantee Program is intended to increase the availability of mortgage lending in Indian country and is restricted to Native Americans, IHAs/TDHEs and Tribes selecting home sites within an Indian area.
Land Ownership In Indian Country
Understanding the various forms of Indian land ownership is important for lenders and program participants because program requirements and processing procedures vary depending upon the way land is held. Differences in requirements and processing instructions, based upon the types of land ownership, are specified throughout this guide.
Defining an Indian Area.
An Indian area is the geographic area within which an Indian housing authority or tribe is authorized to provide housing through its power as a governmental entity. This may include land held in trust by the federal government for tribes or individual Native Americans as well as fee simple land within the operating area of the IHA/TDHE or tribe.
Land Held in Trust for Tribes
Tribal trust lands are held in trust for the tribe by the federal government. The Department of the Interior, through the Bureau of Indian Affairs (BIA), administers the federal government’s trust responsibilities.
Tribal trust land cannot be alienated (taken out of trust) or encumbered without BIA approval.
Tribes may lease or otherwise assign portions of the tribal trust land for the use of specific individuals or purposes, but ownership, through the federal trust, remains with the tribe.
Generally, tribal courts, together with BIA, have jurisdiction over key real estate transactions (lien recording, eviction and foreclosure procedures) on tribal trust lands.
Land Held in Trust for Individual(s)
Allotted trust land is held in trust by the federal government for individual Native Americans.
Tribes generally have no property interest in allotted trust lands. However, like tribal trust land, allotted trust lands cannot be alienated or encumbered without BIA approval.
Real estate transactions (lien recording, eviction, and foreclosure) are sometimes governed by tribal law but in other areas may be under the jurisdiction of state/local government laws.
Unrestricted (Fee) Land Within Indian Areas
The term “fee title” or “fee simple title” generally denotes land in which the owner has an interest that entitles the owner to dispose of the entire property or various interests in the property without hindrance.
Loans on fee land located in an Indian area are eligible for a Section 184 loan guarantee.
Real estate transactions (lien recording, eviction, and foreclosure) are generally under the jurisdiction of state/local government laws. However, in some areas, fee land within the Indian area may be under the jurisdiction of tribal courts.
Determining the Status of Proposed Home Sites
As a part of the initial application, the land status (tribal trust land, allotted or fee simple) of the proposed home site must be identified by the tribe. Lenders should send the Land Status and Jurisdiction.
Roles And Processing Steps
The roles of principal participants are summarized below.
Individual, IHA/TDHE and Indian tribe borrowers are responsible for making an application for financing to an approved Section 184 lender; providing the information needed to enable the lender to determine the borrower’s qualification for mortgage financing; and abiding by the terms of the loan agreement, once the loan is approved.
Responsibilities of the Tribe
Each tribe must enact policies and procedures for processing foreclosure and eviction actions or identify a State/County court that will enforce these procedures.
Tribes may also participate as a coordinator of the program by: assisting borrowers with loan applications; making available, through lease, trust lands for home sites; providing financial assistance to borrowers; and homebuyer education.
Lenders accept and process borrower applications for financing, and, if the borrower qualifies, submit the loan application packages to HUD to request a firm commitment under the Section 184 Program. Lenders may contact the Program ONAP to determine eligibility, land status and other essential information.
Once HUD has approved the firm commitment, and a closing has taken place, the lender makes the loan to the borrower. The loan may be held in their portfolio or sold.
If a lender elects to participate as a Direct Guarantee lender, some procedures must be followed.
In the event of default, the lender has the option of either foreclosing or requesting assignment to HUD.
The responsibility for review of tribal eligibility and land status issues lies with HUD’s Program Office of Native American Programs (ONAP). Responsibility for case number assignment, loan processing, underwriting, issuance of the firm commitment, and guarantee certificate also lies with HUD’s Program ONAP. HUD will:
- Issue a Section 184 case number to reserve Loan Guarantee Funds (if available) and issues the loan guarantee certificate after closing.
- Review all underwriting recommendations submitted by lenders.
- Approve or disapprove firm commitments based on lenders’ submissions.
- For assigned loans, HUD determines the claim payment amount to be paid to the lender and may foreclose on the loan.
- In the case of a foreclosure, HUD will sell the property to another eligible buyer.
- For lender conveyed properties after completion of the foreclosure, HUD determines the claim amount paid to the lender and resells the property.
Role of the Bureau of Indian Affairs
For trust lands, BIA issues Title Status Reports (TSR) and reviews, approves, and records lease contracts, deeds of trust, leasehold mortgages and/or real estate mortgages.
Indian Health Service Responsibilities
The Indian Health Service is available to evaluate the adequacy of water and sewer systems for Native Americans and may also provide for the cost and/or installation of water and sewer systems on an individual or community-wide basis.
Federal Housing Administration (FHA) Loans:
FHA mortgage programs are available to all buyers. These programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans. FHA loan programs are particularly beneficial to those buyers with less available cash.
FHA loan benefits:
- Only requires a 3% down payment
- Ability to finance closing costs
- FHA has set limits on the amount lenders can charge for some closing cost fees (e.g. origination no more than 1% of mortgage).
- Maximum mortgage amount can vary significantly by area. FHA adjusts this amount periodically based on certain economic variables. You should check with your local FHA office or approved lender to determine your maximum mortgage amount.
- Under certain conditions, automatic cancellation of the FHA mortgage insurance premium
Department of Veterans Affairs (VA) Loans:
VA loan programs are available to eligible veterans for the purchase of a home. The VA guaranty loans encourage lenders to offer loans to veterans by protecting lenders against loss if the borrower cannot make the payments. VA loans are particularly beneficial to those veterans that do not have much cash available. VA guidelines allow higher front-end and debt ratios compared to other loan programs.
VA loan benefits:
- No down payment requirement
- More favorable interest rates are frequently offered by lenders because of the VA’s guaranty.
- Ability to finance funding fee
- No mortgage insurance premiums
- Maximum loan amount may be 100% of appraised value of home, determined by a VA-approved appraiser or up to four times the VA eligibility entitlement.