Native home-loan guarantee program is one bright spot in bleak market

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DENVER – Despite the current home financing meltdown and “For Sale” signs sprouting everywhere, one housing sector – a Native-only program – seems to be hale and hearty, at least in the metro area.

“It’s just excellent,” said Edward Vaughan, Native American program specialist in the Department of Housing and Urban Development’s Northern Plains Regional Office. “It’s going very well.”

Adjustable-rate mortgages and other forms of “creative financing” that have brought the housing market to its knees have been avoided in HUD’s Section 184 Indian Home Loan Guarantee program, he said by telephone Nov. 21.

Because of the requirement to operate on a government-to-government relationship with tribal nations and their members, “We have their best interests in mind,” he said.

Vaughan stressed that the program is a federally guaranteed, not federally financed, home purchase and rehabilitation program and, for that reason, prospective buyers can use HUD Section 8 vouchers for low-income housing toward payments without “double-dipping” into federal funds.

The 184 program is restricted to qualified individual American Indians or Alaska Natives who are enrolled members of federally recognized tribes, to tribes themselves, or to various organizations on tribal homelands.

“The Section 184 program was designed to improve access to capital for Native Americans and provide private funding opportunities for tribal housing agencies,” according to a federal publication.

“The program has survived all the chaos in the market because it is a niche program guaranteed 100 percent,” said Paula Crawford, Oglala Lakota, a housing specialist who prepares home loan applications at Native American Bank in Denver.

She estimates that about 600 loan applications have been processed in the last year in the Denver area, where median home values of about $280,000 and average Native family incomes of around $40,000 do not make for easy affordability, according to cost-of-living and service agency estimates.

“Since this is guaranteed 100 percent, a lot of banks want to be a part of it,” she said. “And it’s actually a good market for the secondaries.”

The program has been useful in California, where “home prices are through the roof,” and in the Denver area a family of three can qualify for a home loan of up to $942,975, she said.

Crawford said Native American Bank originates the loans which she processes and sends the loan file elsewhere, often to Bank2 in Oklahoma City, a financial institution wholly owned by the Chickasaw Nation and her biggest investor, she said.

They or other lenders may sell the loans on the secondary market to such institutions as Fannie Mae or such state agencies as the North Dakota Housing Finance Authority or South Dakota Housing Development Authority.

Although the 184 program is not income-driven, potential home buyers have to qualify, she said, explaining that all housing costs and all debt are divided by income, and if the ratio is above 45 percent, HUD would have to analyze it further.

The Section 184 program does not look at credit scores, but it does take into account open collections and judgments, which must be paid and satisfied, she said.

At present, interest rates are fluctuating from 6 to 7.25 percent, but are expected to return to earlier levels of 5.375 percent at some point, she said.

The program offers guaranteed loans at fixed rates for 25 or 30 years for up to 97.75 percent of the purchase or construction amount, and rolls a 1 percent mortgage insurance fee into the home loan, she said.

A tribal or family member can gift the down payment of 2.25 percent and closing costs can be incorporated into the loan if the property appraisal allows it, and the program offers a “streamline refi” – a property is purchased at one interest rate and the rates later drop, the property can be refinanced using the paperwork that was used at closing, she said.

Eligibility is limited to single-family housing from one to four units and the program cannot be used for commercial structures or with adjustable rate mortgages.

Among additional considerations: Rehabilitation loans available under the 184 program are treated like a refinance; rehabilitation costs are imposed on existing loans and the total amount is refinanced.