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Community Developments Investments (August 2013)

  This home in Isleta Pueblo in Albuquerque, N.M., was financed by the Bank of Albuquerque with a loan guarantee through the U.S. Department of Housing and Urban Development’s Section 184 program.  Bank of Oklahoma
This home in Isleta Pueblo in Albuquerque, N.M., was financed by the Bank of Albuquerque with a loan guarantee through the U.S. Department of Housing and Urban Development’s Section 184 program.

Public–Private Partnership Helps Dream of Home Ownership Come True

Gilbert Gerst, Senior Vice President, Community Development Banking, BOK Financial Corporation

Most Indian land is owned by tribes but held in trust by the federal government. Land held in trust for a tribe typically cannot be mortgaged, and federal approval is required before a lien can be placed on land held in trust for an individual. This land ownership structure is the main reason most banks have not actively pursued mortgage lending on Indian land: The banks have been unable to obtain valid liens on property or pursue foreclosure in the event of a loan default. In the event of default, neither the U.S. Department of Housing and Urban Development (HUD) nor a lender may sell a defaulted property to a non-Native American. As a result of this ownership structure, tribes and individual Native American families have historically had limited access to private mortgage capital.

In 1992, Congress created the Indian Home Loan Guarantee Program, referred to as Section 184. This federal program is specifically designed to address the lack of mortgage capital on tribal land. Under Section 184, actively enrolled members of a federally recognized tribe are eligible to apply for, and banks can make government-guaranteed mortgage loans for, the purchase, refinancing, rehabilitation, or new construction of homes on either tribe-owned land or fee simple land that is outside of Native lands. The guarantee is provided by the Office of Loan Guarantee within HUD’s Office of Native American Programs. The intent of this program is to increase the availability of mortgage lending on Indian reservations or designated Indian operating areas.

Through BOK Financial Corporation’s New Mexico banking division, Bank of Albuquerque, we have used Section 184 loans as an important tool to enable individuals and families to realize the dream of home ownership. Bank of Albuquerque works with approximately 19 pueblos in New Mexico. The word “pueblo” means “town” or “village” in Spanish and is also used to refer to various tribes themselves. In 2010–2012, Bank of Albuquerque originated more than 600 loans totaling more than $90 million under this program.

According to 2010 census data, the population of American Indian or Alaska Native individuals in New Mexico totaled 219,512. To prove eligibility for Section 184, an individual must be considered an actively enrolled member in a federally recognized tribe. This membership is validated through a tribal enrollment card. Each tribe has specific tribal enrollment requirements, established to preserve the tribe’s unique character and traditions. The tribes establish membership criteria based on shared customs, traditions, language, and tribal blood. Tribal enrollment criteria are set forth in each tribe’s constitution, articles of incorporation, or ordinances, and vary from tribe to tribe. Common requirements for membership include lineal descendancy from someone named on the tribe’s base roll or relationship to a tribal member who descended from someone named on the base roll. The base roll is the original list of members as designated in a tribal constitution or other document.

The Section 184 program is fairly easy to use, and can be used for purchase, refinance, and single close construction transactions. We use an in-house underwriter who has the authority to approve fee simple land loans, so turnaround is very quick. The maximum loan is 150 percent of the U.S. Federal Housing Administration (FHA) mortgage limit, with only 1.25 percent to 2.25 percent for down payment with no mortgage insurance. Interest rates are fixed and comparable to FHA loan rates. Terms may not exceed 30 years and there is no income limit associated with the program. The Section 184 program also has the lowest cost of any government guarantee or conventional insurance program, with no monthly premium. There is only one qualifying rate, which is a 41 percent total debt-to-income ratio, and that can be exceeded if there are compensating factors.

Tribal trust or leasehold land transactions can take a bit longer for approval, because we must have a residential lease agreement in place that has been approved by the individual tribal government. Then a title status report is issued by the U.S. Bureau of Indian Affairs. Once all of this is in place, the entire file is submitted to one of the three designated underwriters at HUD (in Denver, Colo.; Atlanta, Ga.; or Washington, D.C.). These underwriters underwrite loans for all states, and turnaround times can be two to three weeks. Performance of loans under the program has been good, with overall performance better than the FHA product. We include these loans in Ginnie Mae pools along with other government loans, which are then sold on the secondary market. While we have had defaults under the program, we work closely with tribal leadership in each case to develop the optimal solution to resolve the default.

Through this program, we are able to help individuals—many of whom never thought they would own their own home—achieve the dream of homeownership.

Gilbert Gerst, Senior Vice President, Community Development Banking, can be reached at ggerst@bokf.com.

Community Developments Investments is produced by the OCC’s Community Affairs Department. Articles by non-OCC authors represent their own views and not necessarily the OCC’s.

HUD’s Section 184 Home Loan Guarantee Program

The OCC has published a fact sheet describing the U.S. Department of Housing and Urban Development’s Section 184 Indian Home Loan Guarantee Program, which was authorized by the Housing and Community Development Act of 1992. Section 184 is one of the most important federal programs to help Native Americans obtain home mortgages. By guaranteeing home loans, the program encourages lenders to underwrite mortgages in Indian Country.

Section 184 loans offer many advantages:

  • Low down payments: Program requires a 2.25 percent down payment on loans of more than $50,000 and only 1.25 percent on loans of less than $50,000.
  • Fixed interest rates: Lenders charge market rate. Adjustable rate mortgages are not permitted. Fees are monitored to prevent predatory lending.
  • No monthly mortgage insurance: A one-time 1 percent fee is paid by the borrower at closing and can be financed into the loan.
  • Manual underwriting: The program uses a hands-on approach to underwriting and approval, as opposed to automated decision-making tools.
  • Liquidity: A Section 184 guaranteed loan, including the security given for the loan, may be sold or assigned by the lender to any financial institution. Section 184 loans are eligible for inclusion in Ginnie Mae’s mortgage-backed securities, and some state housing financing agencies and federal home loan banks purchase Section 184 loans.
  • Growing national network of approved lenders: The program’s network of approved lenders includes national companies and local banks and can fulfill a variety of borrowers’ needs.

The program has other conditions as well. For more information, read the Section 184 fact sheet. For information on how to become a Section 184 lender, read HUD’s Lender Section 184 Resources or contact HUD’s Office of Loan Guarantee at (202) 402-2402.

Community Developments Investments is produced by the OCC’s Community Affairs Department. Articles by non-OCC authors represent their own views and not necessarily the OCC’s.