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A Mortgages Goal—Fifty-fold Increase in the Next 20 Years

What would it take to have 250,000 mortgages in Indian country? Everything that’s being done now, on steroids. And new participants, and new thinking.

Recently I did a tally of mortgages done on reservations and came up with an approximation of 5,000 federally-sponsored loans. That’s a fifty-fold increase from when I first started covering this area 20 years ago, when the amount was a pitiful 100.

That’s looking back. What about looking forward? I’d set out a modest goal. I’d like to see another fifty-fold increase in the next 20 years.

What would it take to have 250,000 mortgages in Indian country? Everything that’s being done now, on steroids. And new participants, and new thinking.

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Federal government sponsorship of trust land mortgages, through direct and guaranteed finance, is the cornerstone of the market currently. That needs to continue, but also must be augmented by other sources. Private lending? Sure, but private lenders have been notoriously reluctant to make mortgages in Indian country unless their outlays are covered by the federal government. Banks will be players, but I wouldn’t count on them to do the bulk of the lending.

Some tribes have their own mortgage operations (I am unable to estimate how many loans have been done this way), and as their economic prowess increases this could become a potent way of helping to house their people.

Tribes should also take a look at those pitifully few mortgages done on reservations between 1992 and 1996 (91, to be precise, counted by a survey done by the Government Accountability Office) to arrive at a key takeaway. Those 91 mortgages were done at two tribes (the Tulalip and Oneida Wisconsin) that had ownership stakes in local banks.

So, tribes would be well served to increase the size of their footprint in the financial arena by buying or starting their own financial institutions, like banks and credit unions. Credit unions in particular, with their characteristically modest size, local orientation and co-operative structure, should be very compatible with tribal aims and structure.

Still more financial infrastructure will be needed, though. In recent years a new variant of lender has emerged in Indian country. Native CDFIs (community development financial institutions) are local loan funds empowered by a federal source, the CDFI Fund of the Treasury Department. Currently there are more than 70 of these non-profits, twice the number of Indian-controlled banks and credit unions. They are run by local people, often tribal members with a good sense of financial need on reservations and tribal goals and traditions. Housing is a key goal of Native CDFIs, and mortgage lending could be if they grow in size and underwriting steadiness.

Perhaps there are other new institutions to be minted in Indian country, as well. Casinos and other successful tribal economic ventures that need new workers may be able to finance places for them to live nearby. The lessening of the reservation “brain drain” as people leave because they can’t get housing on the rez would be a good thing.

Equity is needed in Native housing. Federal reports are often lacking in poetry, but one described Indian housing as “an equity desert,” and this is true. Private investors are needed to invest in Indian housing, to buy equity stakes in projects. The Low Income Housing Tax Credit (LIHTC) has been a good mechanism to bring outside investors into Indian housing (they get a tax credit for doing so) but that is a program to support rental housing (also much needed in Indian country but not my topic here). One promising vehicle might be capital loan pools, in which capital market investors provide outside financing (First Nations Oweesta Corp. is launching one to get money for Native CDFIs,)

The overall mortgage market in this country boomed when a “secondary” mortgage market was created. What happens is a lender makes a mortgage to a borrower (that’s the primary market) and then sells it to an investor (the secondary market). Investors like Fannie Mae, Freddie Mac and Ginnie Mae buy the loan either as an investment to be held on their balance sheets, or package them into securities to be sold to capital market investors.

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The net effect for the lender is they don’t have to wait years for the borrower to pay back the mortgage money before they can lend the money out again. The proceeds of the loan sale provide money for the next mortgage. Mortgage capacity booms as outside money flows to the lenders to be reloaned.

There is a secondary market for Indian mortgages. The HUD 184 Indian mortgage, for instance, is eligible to be pooled into Ginnie Mae securities. Fannie Mae signed a “memorandum of understanding” 15 years ago with the Navajo Nation, to start a secondary market there. But waiting for the private market to gather steam won’t generate a fiftyfold increase in mortgages.

Tribes could develop their own secondary market to augment the current ones. An entity under tribal control would have more incentive to increase lending pace, would have an acute understanding of housing need and tribal sovereignty, and would develop sources to tap in the capital markets. It might require some setting aside of reluctance to do inter-tribal ventures, but would probably be well worth it.

Finally, passionate people are needed to make this mortgage quantum leap. I have met many mortgage advocates over the past 20 years. They come from tribes, lenders, non-profits, and even the federal government. Successful Indian mortgage advocates are an unusual amalgam of patient and impatient. They are driven to get things done right away, but they also realize there is much financial inertia and infrastructure that has to be overcome first (sometimes by them banging their heads on the barriers to lending).

Patience is a virtue in Indian country. I have seen too many advocates come in to save the world and then depart a year or two later when the waters haven’t parted for them.

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I am willing to wait another 20 years (the good Lord sparing me that long) to see another fiftyfold increase in mortgage lending and maybe to encourage more tribes, and prod more bankers and government agencies, to gin up a little energy towards the goal. Already I have seen a lot of good will, a lot of hard work, and to be frank, more than one miracle. And the end result is nothing but satisfying. Food, clothing, shelter and things of the spirit are the only things human beings absolutely have to have. Mortgage lending is on the side of the angels.

I’ll close by pointing to a couple of good perspectives. One longtime participant in Native housing, getting on in years, was asked when she thought she might retire.

“When all of my people have decent housing,” she replied.

And the governor of one of New Mexico’s pueblos told a conference that his village had 500 housing units and 5,000 people.

How many of them are homeless? he was asked.

“None,” he said.