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Lending consortium proposed for housing

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PABLO, Mont. - The facts are clear - many Indian people, especially those living on reservations, have a tough time borrowing money to buy a house.

But backers of a proposed tribal lending consortium in Montana and Wyoming believe they can provide more options for Indian homebuyers by offering loans internally. Along with increasing the number of tribal members who would be able to buy houses, the consortium eventually could serve as an economic enterprise for tribal entrepreneurs, says Bob Gauthier, longtime director of the Salish and Kootenai Housing Authority on the Flathead Indian Reservation.

"To me, this is one way to capitalize on the true meaning of sovereignty," he says. "Once this is going, it can create many other opportunities."

Gauthier (pronounced Go-chee) says many mainstream lenders are wary of investing money on reservations, especially for home mortgages. One longstanding problem is that tribal members often want to build or buy a home on trust land, which is difficult to use as collateral. Land held in federal trust is typically ineligible for title insurance, and houses on trust land often aren't located in prime service areas for top-flight fire insurance policies, he says.

Tribal politics and a lack of trust in tribal systems also contribute to the dearth of loans available for reservation residents, he adds.

"The problem is many lenders are scared of tribal governments," Gauthier says. "They're scared of tribal courts," where potential default cases and related actions would have to be settled. But, he adds, "We don't feel that fear is justified."

Gauthier says the consortium concept is relatively simple. Any tribe in Montana or Wyoming that wishes to become a member needs to pony up seed money to be allocated to a general fund. Once the sum is large enough to begin issuing loans, individual tribes would set up the transactions, manage the repayments, and embark on any needed enforcement actions.

A consortium could provide a larger pool of money to attract interest of secondary markets, where the cash can be leveraged, Gauthier says. Member tribes could earn a slice of interest revenue garnered and the enhanced status would help create stronger partnerships with local banks and federal lending institutions, he adds.

"You have to have big enough packages to make them attractive to the bigger entities. The more of these the better because we can then offer rates similar to the rest of America."

Gauthier says the consortium will be in business when $1 million to $2 million is raised for the initial fund. He estimates there's already at least 5,000 mortgage loans that could be made on reservations within the two states. If tribes don't take the initiative, Gauthier says it will only be a matter of time before non-tribal financial interests realize the potential, jump in, and charge premium rates.

"This can't be a give-away program, but it's a way to ensure loans in Indian country.

"Why not have tribes seize this opportunity and make the money?"

Dick Brinck, Montana coordinator for the federal Department of Housing and Urban Development, says other factors are at play in reservation lending. Typically reservations don't have a lot of land suitable for single-family developments and they often lack basic infrastructure, such as utility hookups and the like, he said. For a variety of reasons, he adds, there's often a shortage of homes that can be sold on reservations, and multiple allotment owners often cloud titles.

Brinck says buying a home on an Indian reservation can be a complicated affair, though one of the biggest impediments is clearly a lack of mortgaging infrastructure, including real estate brokers, title insurance companies and even developers.

"I think Bob's idea is a good one. It needs to be done, but it's not going to cure the whole problem."

The proposed Montana-Wyoming Intertribal Development Consortium was first broached in 1995 by Gauthier and the late Salish and Kootenai Tribal Chairman Mickey Pablo, who also served as chairman of the Montana-Wyoming Tribal Leaders Council.

Reservation leaders from around the region have repeatedly embraced the concept, but pulling the new organization together has remained a challenge, Gauthier says.

"This is going to take some leadership," he says of the renewed push. "We have a lot of education to do. It will take a lot of political will from tribal leaders."

Consortium organizers have drawn articles of incorporation and other legal documents. Under the current proposal, the group would operate as a for-profit entity, with member tribes as stockholders.

In the early 1990s, Gauthier served on a blue-ribbon national panel that studied inadequacies in Native American housing programs. Much of its work was incorporated in the 1996 Native American Housing Assistance and Self-Determination Act, commonly known as NAHASDA.

Unfortunately, Gauthier says, subsequent legislation that would have allowed tribes to create a formal U.S. government-sponsored entity, or GSE, did not pass congressional muster. A GSE puts the government's line of credit behind the organization.

Under NAHASDA, tribes can apply for block grants that give them much broader control over management of their housing programs. It also allows tribes to leverage HUD money with their own resources, which is where the consortium idea fits in.

"This is a collective effort" with no ties to the federal government, says Gauthier, chairman of the AMERIND Risk Management Corp., a national, Native-owned nonprofit organization that provides insurance services to tribal housing authorities.

"But we accomplish the same thing. We create liquidity for tribes. We've got the support. We haven't heard any opposition to it. ... There's a lot of people working on this," he says of overall problems. "I think there's movement forward, but not as fast as many of us think is reasonable."

Fannie Mae, a private corporation chartered by the federal government, recently embarked on a new initiative to improve loan access for American Indians, says agency official Maureen Rude. In 1999, the corporation provided more than $30 million in Native American housing investments, a 40 percent increase over 1998 levels.

"We're just getting geared up," Rude says. "We will be focusing a lot of time and attention trying to figure out how to do lending on reservations. There's a whole host of ways we can help with that."

"With most Americans, homes are the main source of personal wealth," Gauthier says, and home equity is often used to start new businesses, but that's not yet true in Indian country. "I think (all of the agencies) should work in concert. They should all be a piece in the puzzle."

Until that happens, he says, tribally controlled lending consortiums can help broaden the mix of options. He also realizes new ideas need time to evolve.

"I'm a firm believer in things happening when they're ready."