A majority of American Indian tribes has yet to sign up for a Department of Veterans Affairs direct home loan program for Native veterans on trust lands.
The Prairie Band Potawatomi Nation of Kansas became the 91st tribe to sign a Memorandum of Agreement (MOU) earlier this year, according to the DVA’s website. The MOU makes veterans of the Nation eligible for a direct home loan from the DVA for existing homes, rehabs or refinancings on trust land.
There are more than 300 federally recognized reservations nationwide, and each tribe with trust land must sign the MOU before the VA will make direct home loans to its members. The MOU gives the agency the right to proceed in the case of defaults and foreclosures.
The program started in 1992 as a pilot and was made a regular DVA product in 2006. According to a 2013 Congressional Research Service report, less than 200 mortgages were extended between program inception and 2000. The pace picked up in the first decade of this century, with 685 loans made between 2000 and 2011, totaling $87.5 million.
That’s an average of about $128,000 per loan, and about 57 loans a year. The most loans extended in a year during that time were 120 in 2003. The best year for dollar volume was 2009, when $15.7 million in loans was extended.
The CRS report noted that volume in the program was concentrated on Native vets far from the U.S. homeland. It found that as of 2011, 90 percent of the loans had been made to Native vets in Hawaii and the territory of American Samoa.
The report, written by CRS housing specialist Libby Perl, noted that VA housing assistance to Native American veterans prior to the program had been minimal. “In fact, the Advisory Committee on American Veterans had been unable to find a single instance of a Native American veteran benefitting from the loan guaranty program” before the start of the 1992 pilot, she wrote.
The program is seeking to branch out from its Pacific concentration. Program director Mike Frueh traveled to Alaska last year to sign up the first Alaska Native communities, starting with the Metlakatla Tribe. Eight additional tribes were signed up during that trip.
In a blog describing the journey, Frueh wrote “The program began in 1992 to help ensure veterans could access their VA home loan benefit, because traditional banks hesitated to lend on federal trust land. Under this program, Native American veterans whose tribes have executed an agreement with VA have more options to use their earned home loan benefit: they can purchase a home using either a conventional loan (their “plain vanilla” VA guaranteed loan benefit) or through a loan that VA makes directly to them.”
The interest rate on the loan currently is 4.0 percent. Among its benefits VA noted the loan has no down payment, no private mortgage insurance and limited closing costs.
The 30-year, fixed-rate mortgages can be made for up to a $417,000 limit in most areas, but some high-cost counties have higher loan limits. The veteran can re-use the program later on, as well.
There is a fee of 1.25 percent of the loan amount. The fee to refinance a prior VA loan is 0.50 percent. “Borrowers have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at the time of loan closing,” according to DVA. The fee is waived in some circumstances, such as if the veteran is receiving VA compensation for a service-connected disability, or the borrower is a surviving spouse of a vet who died in service.