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Controlling the mortgage process: An Indian country primer

ALBUQUERQUE, N.M. - Tribes should jumpstart mortgage finance on tribal lands by designing their own programs, efforts that will not only improve living conditions but will lay the foundation for seed money for small business start-ups.

That's the message of a comprehensive guide called "Designing and Operating Homeownership Programs on Tribal Lands" just released by the New Mexico Tribal Homeownership Coalition.

The Coalition, an ad-hoc group of nearly 50 tribal housing agencies, nonprofits, federal agencies, lenders and others, put out its guide in an effort to allow New Mexico tribes to leverage their federal housing assistance dollars, leverage government and private mortgage programs to create more housing, sponsor or develop more homes themselves, and to help them manage a process not yet well understood on reservations.

Taking advantage of the guide, the coalition said, will allow tribes to provide housing opportunity for members of all incomes, not just low income; allow tribal members to remain on reservation instead of going elsewhere; and enable tribal members to return to the reservation to live.

In addition, it noted the mortgage process will help tribal members build up home equity. "Off reservation, most small business owners use home equity loans to finance start-up costs ? as homeownership becomes more prevalent on Indian reservations, small business and economic development growth will surely follow."

The Coalition said it is following "three fundamental tenets" in publishing the 50-page guide :

o"Increasing access to financial resources for housing is vital to the long-term growth and prosperity of the tribal community."

o"Where applied appropriately, mortgage financing can help tribal members achieve homeownership."

o"Tribal governments must carefully manage the mortgage lending process in order to take advantage of these resources, while preserving tribal lands and social customs."

The guide starts with a review of traditional HUD tribal programs like Low Rent and Mutual Help, administered under the 1937 Public Housing Act, and proceeds to the advantages tribes have gotten under the Native American Housing Assistance and Self Determination Act (NAHASDA). NAHASDA abolished the old "HUD homes" programs and gave tribes significant responsibility for deciding how to use their government housing dollars, which are now given to them in a yearly block grant.

But with the new responsibilities come dangers, the guide said, making land use planning vitally important.

"Scattered site homeownership can have unexpected consequences for the infrastructure or landscape of a community, including sprawl around historic sites, proliferation of roads and intrusion on important scenic areas and impacts on religious sites. Housing subdivisions, as tribes have seen with HUD projects, can have severe consequences for family and community."

The coalition then discusses barriers to ownership. "The most significant barriers stem from the legal issues surrounding the land status and foreclosure. Tribes have been reluctant to place tribal land at any risk of foreclosure for clear historic, cultural and political reasons."

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Other barriers include:

*Lenders' uncertainty whether they could foreclose on a defaulted loan.

* Lenders' worries about creditworthiness of Indian borrowers.

* Lack of physical infrastructure on tribal lands.

* Lack of adequate homebuyer education and credit counseling.

* Lack of downpayment and closing costs assistance.

* The limited role of tribal governments in housing, since traditionally it has been handled by HUD-funded Indian Housing Authorities.

However, "with the proper tribal laws governing a homeownership program, tribal leadership can protect its land from leaving trust status and/or Indian control in all situations." (Individual Indians still may face the prospect of losing family assigned land if they obtain a mortgage on a lease and then default on it.)

The other parties involved must be taken into account, as well. Today's tribal leaders, the Coalition reports, "are learning the need to enact tribal laws that afford legal protections and certainty to both borrowers and lenders and provide an adequate forum to resolve any legal disputes."

Concrete ideas the coalition is putting forward include "the designation of a lead agency to oversee the development and implementation of the program." One such entity is a "one-stop mortgage center." An ideal center's "knowledge of tribal needs, culture, laws and practices, on the one hand, and government and private-sector processes and mortgage financing requirements on the other, allows a one-stop mortgage center to bridge the gaps between lenders, customers and tribal governments."

Some of the things the center will need to do, according to the guide, are to market ownership opportunities to tribal members, conduct buyer education courses and credit counseling, evaluate mortgage financing products, develop financing structures, create and manage buyer financial assistance, offer design and construction contract assistance, and support tribal governments through advocacy and funding.

Tribal leaders must learn about the mortgage process as well, in order to run effective programs. Implementing the necessary legal codes to allow homeownership is a key part of the process, the coalition feels. They must also carefully consider the impact on tribal sovereignty and culture that mortgage programs will have. Allocating tribal funding to fill in gaps in financing is another key role for tribal government.

The guide can be downloaded at the Web site of the Enterprise Foundation:, one of the key members of the coalition. Enterprise has packaged financing for 177 homes, including 66 for homeownership, at the state's tribes and pueblos, at a total financing of $20 million.