Mortgage perks for Native Americans

HUD program expands to serve tribal members living off-reservation

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 16, 2011

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HUD program expands to serve tribal members living off-reservation

Steve Bergsman
Inman News™

Back in September, a press release came across my desk announcing Brett Robinson was hired by Schmidt Mortgage Co., based in Addison, Texas.

Normally, personnel changes including promotions don't register with me, but this one was different because Robinson is a specialist in tribal mortgage loans and he was being hired by Schmidt Mortgage to manage its new 1st Tribal Lending Division.

It's a division that Robinson started at Greenpoint Mortgage, then moved to Bank2 in Oklahoma and now has taken to Schmidt Mortgage.

Tribal lending, actually the production and servicing of Section 184 Guarantee Program loans geared to American Indian and Native Alaska families, tribes, Alaska villages and tribally designated housing entities, is such a specialized niche that there aren't a lot of players.

The only major bank making these loans is Wells Fargo; all of the others are community-based lenders. Other banks such as Bank of America and M&T Bank had been in the business, but dropped out, partly because these loans can be a little challenging to service.

Tribal mortgage loans were created in the Housing and Community Development Act of 1992, but the first loans weren't made until 1995.

Since then, year-over-year growth has been the norm, at least until 2010 and 2011 when the market flattened along with the economy, reports an unidentified spokesperson for the U.S. Department of Housing and Urban Development. The spokesperson predicted growth would begin again in 2012.

As of the last fiscal year, HUD guaranteed 15,000 of these loans with a value of $2.3 billion; 90 percent of all those loans occurred within the last seven years.

Part of the reason for the growing usage of Section 184 loans has been an expansion of the program, allowing for members of a tribe living off-reservation to use this type of mortgage as well. In other words, a Native American working and living in Los Angeles can get a Section 184 loan.

"Under Section 184, HUD came up with a loan guarantee program and the intent was to bring mortgage capital to Native American reservations," Robinson said.

"Those lands cannot be alienated and are held in trust by the tribes, so it makes it problematic for a normal mortgage lender to go in and make loans there. If you had to foreclose, you would be dealing with the tribal court system."

Essentially, the program was created to provide a loan guarantee so the lenders could bring mortgage capital to reservations with the assurance that, as with any lender, if something went wrong, they would get their money back.

Recently, the program was expanded so it allows off-reservation lending to what is called Indian operating areas, which are defined by the tribes that live nearby, "but effectively means in the Western United States you can do one of these loans anywhere," Robinson said. "As you head east, it becomes more limited as to where areas are open to it."

A handful of questions immediately come to mind. First, can any Realtor handle this kind of loan?

The answer is yes, but HUD does require the Realtor go through a two-day training seminar and be brought up to speed on the program.

"It would be good for more Realtors to know the program is out there because they are the point of sale," Robinson said.

"They might recognize their customers are Native Americans, and could say to them, 'Hey, do you know there is this excellent program for Native Americans to help you buy a home?' because one of our issues is a lot of Native Americans aren't aware this program is available to them, especially the ones no longer connected to their tribes."

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