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Popular Indian Mortgage Program Now Costs More

The Department of Housing and Urban Development section 184 American Indian mortgage has just gotten more expensive for Indians.
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The Department of Housing and Urban Development section 184 American Indian mortgage has just gotten more expensive for Indians.

New recipients of the popular loan will see an increase in the “points” they pay at closing from 1 percent to 1.5 percent. And many existing 184 borrowers will have to pay a .15 percent yearly premium, tacking an average of $22 extra per month on their payment for a program-average $175,000 mortgage.

The yearly premium can be cancelled once a mortgage has been paid down to 78 percent of the original loan.

HUD, in the Federal Register, explains the need for the increase as a factor of its increasing success in making mortgages to American Indians and Alaska Natives (tribes and their housing entities are also eligible for 184s).

“Over the last five years, the Section 184 program has doubled the number of loans and eligible families being assisted by the program. For HUD to continue to meet the increasing demand for participation in this program, HUD is exercising its new statutory authority to implement an annual premium to the borrower,” the agency said.

“Without an annual premium, an appropriation of $8 million for Fiscal Year (FY) 2015 would support only about $318 million in new loan guarantee commitments, less than half of the amount the program guaranteed in 2013.”

The agency does realize the extra burden placed on Indian borrowers by this increase. “To reduce some of the hardship accompanying the annual premium, HUD provides that payment of the annual premium can be made through monthly payments, to spread out the cost for borrowers, or annual and lump sum payments, to keep a borrower’s monthly payment lower,” said the agency.

HUD communicated this policy change with a letter to all tribes involved in the 184 program in July.

More money is needed also to help cover increases in losses as the program grows larger, although HUD did not reveal what the program losses have been.

HUD in April decided to bump up the loan origination fee it collects at all closings of section 184s. “On April 4, 2014, HUD exercised its larger loan guarantee fee authority to increase the one-time, loan guarantee fee that borrowers pay at loan closing from 1 percent to 1.5 percent of a mortgage. This increase ensured that there would be enough funding to meet borrower demand for all of fiscal year 2014, and reduce the amount of subsidy needed to meet demand in future years,” it wrote in the Register.

The HUD 184, which guarantees 100 percent of a lender’s outlay, and a second government mortgage program that has targeted American Indian homelands have passed milestones in fiscal 2014. (Native Hawaiians and other Pacific Islanders living on their homelands are eligible for a similar HUD loan, the 184A.)

The section 184 mortgage went over $4 billion in volume, while the Native American Housing Assistance and Self Determination Act Title VI program topped $200 million in loans in 2014.

The HUD 184, which started in 1995, has made $4.3 billion through 26,738 mortgages as of October 28, government data show. That makes the average loan size about $162,000.

Reservation trust land mortgages have been many fewer than those made to Indians living off-reservation on fee simple (private property) land. The split comes to about 3,500 on trust land (for $400 million) and 23,000 on private property ($3.9 billion).

HUD maintains that the large majority of those private property loans go to Indians living adjacent to reservation boundaries. In Alaska and Oklahoma, the two biggest states in HUD 184 volume, it is just about all private property.

Fiscal 2014 HUD 184 volume dropped to $595 million, down from $672 million in 2013.

The Title VI program started lending in 2000 and got off to a slow start, but the pace has picked up in recent years. It is used for big project housing loans, usually covering construction or infrastructure expenses. Fiscal 2014 volume of $14 million, through five loans (making the average loan size close to $3 million) brought the program total to $206.9 million.

In all, 80 Title VIs have been made, financing nearly 3,000 units of housing. The government guarantees 95 percent of a lender's outlays under Title VI. To date, according to federal data, 27 of the loans have been paid back in full.

The biggest Title VI loan to date has been a $50 million loan to the Cherokee Nation of Oklahoma to finance construction and acquisition of some 480 houses in their jurisdiction.