Native American Housing: Homeownership Opportunities on Trust Lands Are
Limited (Letter Report, 02/24/98, GAO/RCED-98-49).
Pursuant to a congressional request, GAO reviewed the homeownership
opportunities for Native Americans on trust lands through private,
conventional lending, focusing on: (1) the number of conventional home
purchase loans private lenders made to Native Americans on trust lands;
(2) the major barriers to conventional home purchase lending to Native
Americans on trust lands; (3) efforts to facilitate conventional home
purchase lending to Native Americans on trust lands; (4) whether the
implementation of the Native American Housing Assistance and
Self-Determination Act of 1996 will result in more conventional home
purchase loans being made to Native Americans on trust lands; and (5)
whether the backlog at the Bureau of Indian Affairs of requests for
certifying documents affecting the legal status of the trust lands has
been a deterrent to conventional home purchase lending to Native
Americans.
GAO noted that: (1) few Native Americans have purchased homes on trust
lands by using private, conventional financing; (2) during the 5-year
period of calendar year 1992 through 1996, lenders made only 91
conventional home purchase loans to Native Americans on trust lands; (3)
moreover, of the 91 such loans GAO identified, 80 were made to the
members of two tribes--the Tulalips of Marysville, Washington, and the
Oneida Tribe of Indians of Wisconsin; (4) making conventional home
purchase loans on Native American trust lands involves overcoming
long-standing barriers; (5) the most significant barriers are that
lenders: (a) are uncertain about whether they can foreclose on Native
American trust lands to recover their loan funds; (b) have difficulty
understanding the implications of the different types of land ownership
because of the complex status of Native American trust lands; (c) are
unfamilar with the tribal courts in which litigation is conducted in the
event of a foreclosure; and (d) are concerned about the absence of
housing ordinances governing foreclosure in tribal communities; (6) some
mortgage lenders, as well as public and private organizations, have
initiated efforts to increase Native Americans' opportunities to finance
homes on trust lands with conventional home purchase loans; (7) to make
the 91 loans GAO identified, lenders created special programs
emphasizing the development of housing ordinances and homeownership
counseling services or used long-standing relationships with tribes and
tribe members; (8) other broader public and private efforts begun
recently, such as the Federal National Mortgage Association's lending
initiatives for Native Americans, may have some potential for increasing
the number of conventional home purchase loans on trust lands; (9) other
efforts by the Federal Home Loan Bank System and the Office of the
Comptroller of the Currency may have some potential for improving Native
Americans' overall access to financing and capital, which may, among
other things, encourage more conventional home purchase loans on trust
lands; (10) the extent to which the Native American Housing Assistance
and Self-Determination Act of 1996 will increase conventional home
purchase lending for Native Americans on trust lands is uncertain; (11)
this act, which became effective on October 1, 1997, contains provisions
that allow tribes to leverage housing block grant funds and extend land
lease terms from 25 to 50 years; and (12) however, whether tribes can or
will use leveraged funds to encourage conventional home purchase lending
is uncertain, and many tribes' land lease terms have already exceeded 25
years.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-98-49
TITLE: Native American Housing: Homeownership Opportunities on
Trust Lands Are Limited
DATE: 02/24/98
SUBJECT: Native Americans
Mortgage loans
Housing programs
Indian lands
Lending institutions
Mortgage programs
Loan defaults
Loan repayments
Block grants
Foreclosures
IDENTIFIER: Tulalip Tribe
Oneida Tribe
Navajo Indian Tribe
FHLB Affordable Housing Program
FHLB Community Investment Program
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Cover
================================================================ COVER
Report to the Chairman, Committee on Indian Affairs, U.S. Senate
February 1998
NATIVE AMERICAN HOUSING -
HOMEOWNERSHIP OPPORTUNITIES ON
TRUST LANDS ARE LIMITED
GAO/RCED-98-49
Native Americans' Homeownership Opportunities
385679
Abbreviations
=============================================================== ABBREV
BIA - Bureau of Indian Affairs
CRA - Community Reinvestment Act
FHA - Federal Housing Administration
FHLBank - Federal Home Loan Bank
FannieMae - Federal National Mortgage Association
HUD - Department of Housing and Urban Development
LTRO - Land Titles and Records Office
NAHASDA - Native American Housing Assistance and Self-Determination
Act of 1996
OCC - Office of the Comptroller of the Currency
RHS - Rural Housing Service
VA - Department of Veterans Affairs
Letter
=============================================================== LETTER
B-276933
February 24, 1998
The Honorable Ben Nighthorse Campbell
Chairman, Committee on Indian Affairs
United States Senate
Dear Mr. Chairman:
In 1996, lenders provided single-family mortgages valued at about
$785 billion to families and individuals to buy homes in the United
States. While a variety of public and private institutions were
involved in supplying credit to these households, private
institutions provided help for most of them. For about 86 percent of
the $785 billion in mortgages, private institutions provided help
without direct federal assistance. However, for the approximately
1.2 million Native Americans inhabiting trust lands (lands held by
the federal government for the benefit of Native Americans), private
institutions have rarely supplied conventional home purchase loans.\1
Consequently, federal government assistance is nearly always required
to provide homeownership opportunities to Native Americans on trust
lands.
Interested in increasing homeownership opportunities for Native
Americans on trust lands through private conventional lending, you
requested that we assess the barriers to conventional home purchase
financing.\2 Specifically, you asked us to determine the following:
-- How many conventional home purchase loans have private lenders
made to Native Americans on trust lands?
-- What are the major barriers to conventional home purchase
lending to Native Americans on trust lands?
-- What efforts are under way to facilitate conventional home
purchase lending to Native Americans on trust lands?
-- Will the implementation of the Native American Housing
Assistance and Self-Determination Act of 1996 (P.L. 104-330)
result in more conventional home purchase loans being made to
Native Americans on trust lands?
In addition, you asked us to determine whether the backlog at the
Department of the Interior's Bureau of Indian Affairs of requests for
certifying documents affecting the legal status of trust lands has
been a deterrent to conventional home purchase lending to Native
Americans. Appendix I provides information on the impact of the
Bureau's backlog.
--------------------
\1 By conventional home purchase loans, we mean mortgage loans made
by private lenders without federal assistance, such as federal loan
insurance or guarantees.
\2 Our work covered the continental United States.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Few Native Americans have purchased homes on trust lands by using
private, conventional financing. During the 5-year period of
calendar year 1992 through 1996, lenders made only 91 conventional
home purchase loans to Native Americans on trust lands. Moreover, of
the 91 such loans we identified, 80 were made to the members of two
tribes--the Tulalips of Marysville, Washington, and the Oneida Tribe
of Indians of Wisconsin.
Making conventional home purchase loans on Native American trust
lands involves overcoming long-standing barriers. The most
significant barriers are that lenders (1) are uncertain about whether
they can foreclose on Native American trust lands to recover their
loan funds; (2) have difficulty understanding the implications of the
different types of land ownership because of the complex status of
Native American trust lands; (3) are unfamiliar with the tribal
courts in which litigation is conducted in the event of a
foreclosure; and (4) are concerned about the absence of housing
ordinances governing foreclosures in tribal communities.
Some mortgage lenders, as well as public and private organizations,
have initiated efforts to increase Native Americans' opportunities to
finance homes on trust lands with conventional home purchase loans.
To make the 91 loans we identified, lenders created special programs
emphasizing the development of housing ordinances and homeownership
counseling services or used long-standing relationships with tribes
and tribe members. Other broader public and private efforts begun
recently, such as the Federal National Mortgage Association's lending
initiatives for Native Americans, may have some potential for
increasing the number of conventional home purchase loans on trust
lands.\3 Other efforts by the Federal Home Loan Bank System and the
Office of the Comptroller of the Currency may have some potential for
improving Native Americans' overall access to financing and capital,
which may, among other things, encourage more conventional home
purchase loans on trust lands.\4
The extent to which the Native American Housing Assistance and
Self-Determination Act of 1996 will increase conventional home
purchase lending for Native Americans on trust lands is uncertain.
This act, which became effective on October 1, 1997, contains
provisions that allow tribes to leverage housing block grant funds
and extend land lease terms from 25 to 50 years. However, whether
tribes can or will use leveraged funds to encourage conventional home
purchase lending is uncertain, and many tribes' land lease terms
already exceeded 25 years.
--------------------
\3 The Federal National Mortgage Association is a federally
chartered, shareholder-owned company that helps make capital
available for mortgage lending.
\4 The Federal Home Loan Bank System is a federally chartered,
privately owned system of 12 banks that exist to facilitate the
extension of mortgage credit. The Office of the Comptroller of the
Currency is a federal financial regulatory body that oversees
federally chartered banks.
BACKGROUND
------------------------------------------------------------ Letter :2
The federal government holds in trust about 55 million acres of land
for tribes and individual Native Americans, most of it on or near
reservations. Sixty percent of the 2 million Native Americans live
on trust lands or in the surrounding counties. Reservations range in
size from the Navajo Reservation, the largest, with about 17 million
acres, to California's small reservations, called rancherias, which
comprise just a few acres. For a map showing the locations of some
of the Indian reservations on which trust lands are located, see
appendix II.
There are two major ownership categories for land held in trust by
the federal government for Native Americans: (1) tribal trust and
(2) individual trust. Tribal trust lands are areas set aside and
held in trust by the federal government for the use and benefit of
tribes. Individual trust lands are areas set aside by tribes or, in
some cases, by the federal government that are held in trust by the
federal government for the use and benefit of individual Native
Americans. Of the approximately 55 million acres of trust lands,
about 45 million are tribal trust lands, and 10 million are
individual trust lands. All trust lands are subject to federal
restrictions against alienation and encumbrance.\5
In general, land is privately held without restrictions and can be
used as collateral for the repayment of a mortgage loan. However,
Native American trust lands generally cannot be transferred to
non-Native Americans, which prevents Native Americans from using
trust lands as collateral for mortgage loans. Only individual trust
lands can be transferred to non-Native Americans and then only with
the consent of the Native American landowner and approval by the
Secretary of the Interior or an authorized representative. With
these approvals, individual Native American trust lands can be used
as collateral for mortgage loans.
Pervasive joblessness and low wages have led to high poverty rates
among Native Americans living on reservations. Half of these Native
Americans have incomes below the poverty line. Also, the latest
information available shows that in 1991, the average unemployment
rate on 30 reservations with populations of 3,000 or more was 46
percent, according to the Bureau of Indian Affairs (BIA). BIA
estimated that in 1990 only 25 percent of employed Native Americans
living on or near reservations earned $7,000 or more annually,
compared with 75 percent of the general U.S. population. In
addition, housing conditions on Native American trust lands are much
worse than those in other areas of the country: 40 percent of Native
Americans on trust lands live in overcrowded or physically inadequate
housing, compared with 6 percent of the overall U.S. population.
Federal agencies provide nearly all of the housing--both
owner-occupied and rental--developed on Native American trust lands.
Four federal agencies--the Department of Housing and Urban
Development (HUD), the Department of Veterans Affairs (VA), BIA, and
the Department of Agriculture's Rural Housing Service (RHS)--provide
housing assistance through grants, subsidies, and loan guarantees and
insurance. HUD provides the largest amount of assistance. From
fiscal year 1986 through fiscal year 1995, HUD provided $4.3 billion
(constant 1995 dollars) for housing and community development in
tribal areas. Of this amount, HUD provided $3.9 billion to
approximately 189 Indian housing authorities to develop and maintain
affordable housing and to assist low-income renters. The authorities
used those funds to construct over 24,000 single-family homes, to
operate and maintain existing housing, and to encourage other
development.\6 Over the decade, HUD also provided direct block grants
totaling more than $424 million to eligible tribes for community
development and mortgage assistance. Appendix III contains a more
detailed description of federal programs providing homeownership and
rental assistance specifically to Native Americans.
HUD's Federal Housing Administration (FHA) and VA also operate
programs that provide lenders with guarantees and insurance on
personal property loans made to Native Americans for manufactured
homes.\7 According to the 1990 Census, 14 percent of Native American
households on reservations lived in manufactured homes. The
corresponding rate for all households in the United States was 7
percent and for Native American households not on reservations, 12
percent. Manufactured homes are primarily purchased with personal
property loans, which may be easier to obtain than home purchase
loans, especially for those who live in remote areas, have low
incomes, or have inadequate credit histories. According to a 1995
Manufactured Housing Institute survey of lenders making manufactured
home loans, about 92 percent of the loans were for the homes only,
while 8 percent financed both the home and the land. In addition to
the 91 conventional home purchase loans we identified in our work, at
least another 22 conventional loans were made to Native Americans for
purchasing manufactured homes on trust lands over the 5-year period
ending in calendar year 1996.
--------------------
\5 Alienation of Native American trust lands is the transfer of its
ownership to non-Native Americans. Encumbrance is a claim, lien,
charge, or liability attached to and binding real property.
Moreover, an encumbrance is any right to or interest in land that may
be held by someone other than the owner that will not prevent the
transfer of the title to the land.
\6 Sixty-five percent of the 24,000 housing units were Mutual Help
units, and the remainder were low-income rental units. Through the
Mutual Help Program, HUD provides homeownership opportunities and
financial assistance to qualified low-income Native Americans to
purchase modest housing after leasing for 15 to 20 years.
\7 A manufactured home is built entirely in a factory, transported to
a homesite, and installed.
LENDERS MADE FEW CONVENTIONAL
HOME PURCHASE LOANS TO NATIVE
AMERICANS ON TRUST LANDS
------------------------------------------------------------ Letter :3
Few Native Americans have purchased homes on trust lands by using
private, conventional financing. During the 5-year period of
calendar year 1992 through 1996, lenders made only 91 conventional
home purchase loans to Native Americans on trust lands. At our
request, BIA surveyed all 83 of its Agency Offices in the continental
United States to obtain their best estimates of the number of
conventional home purchase loans made by private lenders on tribal
and individual trust lands. Eight lenders in five states (Michigan,
Montana, North Dakota, Washington, and Wisconsin) made the 91 loans
to members of eight tribes. Three lenders in two states, Washington
and Wisconsin, made 80 of the 91 loans to members of two tribes--the
Tulalips and the Oneidas. All eight lenders have held the loans in
their portfolios and have not sold them in the secondary mortgage
market.\8 Officials of three of the eight lenders told us they are
large or medium-sized regional lenders, while officials from the
other five told us they are small community lenders.
Home purchase loans of any type made to Native Americans on trust
lands, not just conventional home purchase loans, have been few in
number. Even when home purchase loans can be nearly fully guaranteed
or insured by HUD against loss, lenders have made few loans to Native
Americans on trust lands. For example, HUD operates two mortgage
guarantee and insurance programs specifically to foster Native
American homeownership; but, as of September 30, 1997, lenders had
made only 128 loans on trust lands since the inception of these
programs in 1983 and 1995.\9
--------------------
\8 The secondary mortgage market allows lenders to sell mortgages
they originate to secondary market entities and, by doing so, to make
funds available for additional mortgage lending by banks, mortgage
bankers, and other lenders. The Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation are the
largest of the secondary market entities that purchase conventional
mortgages.
\9 Of the 494 loans made under HUD's programs as of September 30,
1997, 128 were for homes on trust lands and 276 were for homes on
privately held lands; the agency could not determine the land status
for the remaining 90 loans.
MAJOR BARRIERS EXIST TO
CONVENTIONAL HOME PURCHASE
LENDING TO NATIVE AMERICANS ON
TRUST LANDS
------------------------------------------------------------ Letter :4
Since the early 1980s, many studies and reports have documented the
legal, social, and geographical barriers to financing conventional
home purchase loans for Native Americans on trust lands. The
bibliography at the end of this report lists these studies and
reports. We found that the barriers identified in past studies and
reports still exist today. The most significant barriers are that
lenders (1) are uncertain about whether they can foreclose on Native
American trust lands to recover their loan funds; (2) have difficulty
understanding the implications of the different types of land
ownership because of the complex status of Native American trust
lands; (3) are unfamiliar with the tribal courts in which litigation
is conducted in the event of a foreclosure; and (4) are concerned
about the absence of housing ordinances governing foreclosures in
tribal communities.
While some of these barriers also apply to home purchase loans
guaranteed or insured by the federal government, lenders are
generally not as concerned about their risk on such loans because the
federal government protects them against losses. Appendix IV
discusses two other barriers identified in various studies and
reports: the low socioeconomic status of Native Americans living on
trust lands and the remoteness of those lands.
LENDERS ARE UNCERTAIN ABOUT
RECOVERING FUNDS IN THE
EVENT OF A FORECLOSURE
---------------------------------------------------------- Letter :4.1
The primary barrier identified by the studies and reports we reviewed
is the uncertainty lenders have about recovering the outstanding loan
balance on a home on trust lands if the borrower defaults and a
foreclosure results. This uncertainty is created by the inalienable
status of trust lands, which can prevent individuals from using the
land for loan collateral. For example, in May 1996, the Urban
Institute reported that the primary legal obstacle lenders perceived
in making mortgage loans to Native Americans on trust lands is the
difficulty in recovering outstanding loan amounts in cases of
default.\10 Reports by the National Commission on American Indian,
Alaska Native, and Native Hawaiian Housing in 1992 and the
Presidential Commission on Indian Reservation Economies in 1984 also
stated that lenders are concerned about loan security and their
ability to reclaim assets in cases of foreclosure on trust lands.\11
In addition, a 1983 BIA report on the obstacles to economic growth on
Indian reservations pointed out lenders' concern that their recourse
may be limited in cases of home loan defaults.\12
--------------------
\10 In 1993, HUD commissioned a study by the Urban Institute Center
for Public Finance and Housing that resulted in a May 1996 report,
Assessment of American Indian Housing Needs and Programs.
\11 National Commission on American Indian, Alaska Native, and Native
Hawaiian Housing, Building the Future: A Blueprint for Change, "By
Our Homes You Will Know Us," final report (Washington, D.C.: 1992),
and Presidential Commission on Indian Reservation Economies, Report
and Recommendations to the President of the United States
(Washington, D.C.: Nov. 1984).
\12 Alan Parker and Marguerite Gee, Survey of Indian Economic
Development Issues, Report to the Assistant Secretary of the Interior
for Indian Affairs (Washington, D.C.: Feb. 1983).
TRUST LAND OWNERSHIP STATUS
IS COMPLEX
---------------------------------------------------------- Letter :4.2
Land ownership within many Indian reservations is very complex. Land
within the geographic boundaries of a reservation may be owned by the
tribe; by individual Native Americans or non-Native Americans; and by
the federal, state, or local governments. On many reservations, the
different types of land ownership create a "checkerboard" pattern of
ownership. As discussed previously, there are two major ownership
categories for land held in trust by the federal government for
Native Americans: tribal trust and individual trust. In addition,
reservations can also include privately held lands, which do not have
the same restrictions as trust lands. These types of land ownership
create jurisdictional problems as each type is subject to different
laws--frequently a significant source of uncertainty to private
lenders in encumbrancing property.
Trust lands' ownership status is further complicated by the
differences in the appropriate collateral for mortgages. Generally,
lenders secure mortgage loans with ownership interests in real
property or leaseholds.\13 The trust lands' ownership status--tribal
or individual--determines whether home buyers can secure loans
involving these lands by using ownership interests in the property or
leaseholds. Loans involving tribal trust lands can be secured by
leasehold interests, but federal law generally prohibits a lender
from obtaining an ownership interest in such lands. In an attempt to
make it easier for Native Americans to finance homes on tribal trust
lands, recent legislation increased the leasehold period from 25 to
50 years.\14
For individual trust lands--lands given to individuals by a tribe or
the federal government--lenders may secure the individual's ownership
interest in the property with the Native American landowner's and
BIA's approval. Individual trust lands can lose their trust status
in the event of a foreclosure under these conditions and leave Native
American ownership.
--------------------
\13 A leasehold mortgage is a loan secured by the lessee's interest
in the property. Upon default, the lender has the right to exercise
control over the land for the remaining term of the underlying lease.
\14 Under the Native American Housing Assistance and
Self-Determination Act of 1996, tribes can lease trust lands for up
to 50 years.
LENDERS ARE UNFAMILIAR WITH
TRIBAL COURT PROCEDURES
ASSOCIATED WITH FORECLOSURES
---------------------------------------------------------- Letter :4.3
Generally, disputes involving housing foreclosure transactions
between tribes and individual Native Americans and non-Native
Americans are subject to the jurisdiction of tribal courts. State
courts do not have jurisdiction over suits brought by Native and
non-Native Americans on matters involving trust lands. Because of
their unfamiliarity with tribal courts, lenders are usually reluctant
to risk their capital if the only forum for litigation is tribal
courts, according to a report by a Native American consulting
firm.\15
Although lenders may specify guidelines for repayment as a condition
of mortgage loans, in most cases lenders must use tribal courts to
enforce repayment requirements. Most lenders have little or no
experience with tribal courts that have jurisdiction over foreclosure
proceedings. Also, lenders are reluctant to press their claims in
tribal courts for fear that tribal courts will not protect the
property rights of non-Native Americans by according them due process
of law, according to a report by the Presidential Commission on
Indian Reservation Economies.\16
--------------------
\15 Charles Trimble Company Inc., Facilitating Tribal Access to
Investment Financing (Omaha, Neb.: 1993).
\16 Presidential Commission on Indian Reservation Economies, Report
and Recommendations to the President of the United States
(Washington, D.C.: Nov. 1984).
THE ABSENCE OF TRIBAL
HOUSING ORDINANCES COMPOUNDS
LENDERS' CONCERNS
---------------------------------------------------------- Letter :4.4
Few tribes have enacted housing ordinances, and many have not defined
foreclosure procedures, factors that make lenders hesitant to make
conventional home purchase loans to Native Americans on trust lands,
according to a draft report by the National American Indian Housing
Council.\17 Moreover, there are, for the most part, no laws or
processes operating on trust lands governing how, or whether, lenders
can take possession of collateral in the event of a foreclosure.
Officials of one lender in the Northwest told us that formulating the
housing ordinances necessary for lending on trust lands is
time-consuming and costly. This lender has been working with a tribe
to develop a housing ordinance for over a year. This effort was the
impetus for the lender's writing a model housing ordinance that
includes provisions for foreclosures, evictions, and land access,
among other provisions. Even with a model tribal housing ordinance,
the officials expect the negotiations with other tribes to take
considerable time because each tribe will want different provisions
in its housing ordinance. Moreover, the officials stated that
because each tribe's interests and circumstances are different, a
lending agreement formulated at one tribe is not necessarily
transferable to another tribe.
--------------------
\17 National American Indian Housing Council, Expanding Home
Ownership Opportunities in Native American Communities: The Role of
Private Sector Housing Finance, draft report (Washington, D.C.: July
1997).
SOME PRIVATE LENDERS HAVE
OVERCOME BARRIERS, AND BROADER
INITIATIVES ARE UNDER WAY THAT
MAY HAVE SOME POTENTIAL TO
INCREASE LENDING
------------------------------------------------------------ Letter :5
Although the barriers to conventional home purchase lending to Native
Americans on trust lands are formidable, some lenders have found ways
to overcome them. We found that the lenders that made the 91
conventional home purchase loans to Native Americans on trust lands
during the 5-year period of calendar years 1992 through 1996 did so
by creating special programs or using long-standing relationships
with tribes and their members to facilitate lending. The special
programs emphasized homeownership counseling and the negotiation of
housing ordinances. In addition, some public and private
organizations are developing initiatives that could simplify and may
have some potential to increase conventional home purchase lending to
Native Americans on trust lands.
SOME LENDERS CREATED SPECIAL
PROGRAMS OR USED
LONG-STANDING RELATIONSHIPS
TO FACILITATE LENDING
---------------------------------------------------------- Letter :5.1
The eight lenders that made the 91 conventional home purchase loans
to Native Americans on trust lands either created special lending
programs or relied on long-standing relationships with tribes and
tribe members as their assurance against potential foreclosures.
These lenders told us that they initiated the activities that led to
these loans because they recognized the critical housing needs of
Native Americans or had a long history of providing many types of
financial services to the tribes and their members. All eight
lenders reported that they had not lowered their underwriting
standards in making the 91 loans and that counseling borrowers on
homeownership responsibilities was invaluable. Some lenders
negotiated tribal housing ordinances addressing foreclosures, but
others did not.
WASHINGTON MUTUAL BANK
-------------------------------------------------------- Letter :5.1.1
Washington Mutual Bank, a large regional lender located in Seattle,
Washington, is the largest home mortgage lender and one of the
largest banks, in terms of assets, in the Pacific Northwest. Twenty
tribes are located within the bank's service areas in Washington,
Oregon, and Idaho. While additional tribes are located within the
bank's service areas in Montana and Utah, bank officials told us that
they are not providing services to these tribes because their
locations are so remote.
During the 5-year period ending in calendar year 1996, Washington
Mutual Bank made nine conventional home purchase loans to Tulalip
Tribe members on individual trust lands. Bank officials told us they
initiated the lending program because they recognized the critical
housing needs of the reservation-based Native Americans in their
service areas.
According to bank officials, Tulalip Tribe members did not understand
that establishing a history of financial relationships and the
prudent use of credit was required to qualify for a home purchase
loan. Moreover, bank officials found that the tribe's members were
often more comfortable obtaining this kind of information from other
tribe members than from the bank's representatives. The Tulalip
Housing Authority has played an important role in educating tribe
members on the bank's home purchase loan requirements. For example,
the authority has identified and counseled tribe members who
potentially meet Washington Mutual Bank's underwriting standards for
conventional home purchase loans. According to bank officials, such
assistance is invaluable because it acquaints the tribe's members
with homeownership requirements and responsibilities, prequalifies
potential borrowers, and provides lenders with contact points in
formulating agreements for conventional home purchase lending.
Under the bank's conventional home purchase lending program, tribes
must establish housing ordinances that cover tribal foreclosure
procedures, evictions, and land access rights. In addition, the
housing ordinances must contain provisions for the bank to have the
first opportunity to recover assets in cases of foreclosure.
Moreover, the bank requires that housing ordinances contain no land
sale restrictions should foreclosures occur on individual trust
lands. The bank and Tulalip Tribe officials negotiated a housing
ordinance that contains these provisions for the conventional loans
the bank has made. While no foreclosures have occurred on the nine
loans made to Tulalip Tribe members, Washington Mutual Bank officials
told us they would make a concerted effort to provide the tribe with
the first right of purchase before instituting a foreclosure.
For the nine loans made to Tulalip Tribe members, the bank used its
standard underwriting criteria and made the loans at the current
fixed or adjustable interest rates. The bank provided loans for 90
percent of the value of each home, and the tribe members obtaining
the loans made down payments of 10 percent. The process for
approving and closing conventional home purchase loans involves not
only bank officials and the individual borrowers, but also tribal and
federal government officials. A flow chart detailing Washington
Mutual Bank's process for making conventional home purchase loans on
Native American trust lands is in appendix V. Bank officials told us
that this process is much more time-consuming than that for
conventional home purchase loans involving privately held lands and
substantially reduces loan volume.
Nevertheless, Washington Mutual Bank is preparing to offer
conventional home purchase loans to the members of a second tribe,
the Lummi. According to bank officials, Lummi Tribe members are
interested in passing housing ordinances that will enable them to use
the bank's home loan programs on individual trust lands.
ASSOCIATED BANK OF GREEN
BAY
-------------------------------------------------------- Letter :5.1.2
Associated Bank of Green Bay is a large regional lender located in
Green Bay, Wisconsin. The bank's service area consists of five
counties in northeastern Wisconsin. The Oneidas are the only tribe
in the bank's service area. Associated Bank made 56 conventional
home purchase loans on tribal and individual trust lands to members
of the Oneida Tribe during the 5-year period ending in calendar year
1996. Bank officials told us they initiated conventional home
purchase lending for the Oneida Tribe because the bank had a long
history of providing many types of services to the tribe and its
members. Moreover, the officials stated that they were aware that a
market for conventional home purchase loans existed among the
Oneidas. The Oneida Tribe has provided homeownership and credit
counseling for its members that, according to bank officials, was
very beneficial for both the tribe's members and for the bank because
it prepared the borrowers well for homeownership responsibilities.
The 56 conventional home purchase loans made to Oneida Tribe members
on tribal and individual trust lands were 1-, 3-, 5-, or 7-year
adjustable rate mortgages. Associated Bank provided financing for 80
percent of the value of the homes. To help with down payments, the
Oneida Tribe provided borrowers with low-interest loans of up to 20
percent of the value of the homes. Associated Bank officials said
they did not modify their underwriting standards in making the home
purchase loans to the Oneida Tribe members. Before initiating any
conventional home purchase lending, Associated Bank officials
reviewed the Oneidas' tribal housing ordinance and found it
acceptable for lending. Bank officials told us the Oneida Tribe has
the first option to purchase property should foreclosures occur.
FIRST HERITAGE BANK
-------------------------------------------------------- Letter :5.1.3
First Heritage Bank is a small community bank located in Marysville,
Washington. The bank's lending area consists of Snohomish County,
Washington. Two tribes, the Tulalip and the Stillaguamish, are
located in the bank's service area.
During the 5-year period ending in calendar year 1996, First Heritage
Bank made 16 conventional home purchase loans on individual trust
lands to Tulalip Tribe members. Because of the bank's long-standing
personal and business relationships with the tribe and its members,
it made these loans without negotiating a housing ordinance. Bank
officials told us that they have provided many types of banking
services, such as savings and checking accounts and business and
consumer loans to the Tulalip Tribe and its members for many years.
Should a foreclosure occur, the land, since it is individual trust
land, would transfer out of trust and would then be sold to any
qualified buyer, according to bank officials.
First Heritage Bank's 16 conventional home purchase loans were for 75
percent of the value of the homes. Bank officials told us that the
borrowers usually provided down payments of 25 percent. Moreover,
the bank accepted the tribe member's equity in individual trust land
when a borrower could not provide a down payment. The bank did not
modify its underwriting standards in making home purchase loans to
Tulalip Tribe members, according to officials.
OTHER LENDERS
-------------------------------------------------------- Letter :5.1.4
Each of the remaining five small or medium-sized community lenders
made four or fewer conventional home purchase loans to Native
Americans on individual trust lands during the 5-year period ending
in calendar year 1996. Four of the five lenders made the loans
because of long-standing relationships with the tribes and their
members. For example, First State Bank of Rolla, a small community
bank located in Rolla, North Dakota, made four conventional home
purchase loans to members of the Turtle Mountain Chippewa Tribe on
individual trust lands. An official told us that the bank has
provided a variety of services to members of the tribe over many
years. This official also said that because of this long-standing
relationship, the bank made the loans in spite of the lack of
foreclosure provisions in the tribal housing ordinance. Bank
officials are, however, negotiating foreclosure provisions with the
tribe. Currently, bank and tribe officials have an understanding
that should a foreclosure occur, another Turtle Mountain Chippewa
Tribe member would be likely to have the first option to purchase the
property, according to a bank official.
INITIATIVES ARE UNDER WAY TO
FACILITATE CONVENTIONAL HOME
PURCHASE LENDING ON TRUST
LANDS
---------------------------------------------------------- Letter :5.2
Some federal agencies, public and private institutions, and nonprofit
organizations are beginning to direct some of their financial
resources and housing expertise to expanding opportunities for Native
Americans to buy homes. While some of these efforts address the
broader issue of Native Americans' access to credit of all kinds,
officials from these organizations share a common belief that
improving access to credit will enhance the ability of Native
Americans to purchase homes without government assistance. They also
believe that privately owned housing is a likely source of economic
growth for Native Americans living on reservations.
FANNIE MAE'S LENDING
INITIATIVES FOR NATIVE
AMERICANS
-------------------------------------------------------- Letter :5.2.1
The Federal National Mortgage Association's (Fannie Mae) Native
American lending initiatives are part of the organization's
commitment to invest $1 trillion in affordable and decent housing for
low- and moderate-income American families.\18 Fannie Mae has not set
a specific funding level for its investments on Native American trust
lands. Under its initiatives, Fannie Mae accepts tribes' resale
restrictions and tribal jurisdiction over mortgage lending that helps
to preserve the trust status of Native American lands.
Fannie Mae's lending initiatives for Native Americans involve both
conventional and federally supported mortgage loans. The
conventional loan effort for Native Americans began in 1994 when
Fannie Mae formed a task force to assess the business and legal risks
associated with conventional lending on trust lands. Fannie Mae
developed standard loan documents and agreements for conventional
lending on trust lands and negotiated special transactions with
tribes. In 1996, Fannie Mae began approving tribes for conventional
lending under agreements with private mortgage and title insurers to
provide their services on trust lands. The Navajos were the first
tribe approved under Fannie Mae's conventional lending initiative and
the first tribe to be approved for all of Fannie Mae's Native
American initiatives. While no conventional loans had closed for
members of the Navajo Tribe as of November 17, 1997, Fannie Mae was
working on loans with its lender partners. Fannie Mae also had
approved the Cochiti Pueblo and the Fort Mojave Tribe for
conventional lending on trust lands and was reviewing requests from
other tribes interested in making conventional lending available to
their members.
Fannie Mae's lending initiatives for Native Americans involving
federally supported mortgage loans began in 1995 when it approved
loans for purchase made under HUD's guarantee and insurance programs
on trust lands. Fannie Mae also entered into a partnership with the
U.S. Department of Agriculture's Rural Housing Service (RHS) to
create a pilot program under which RHS guarantees mortgage loans on
Indian reservations and tribal trust lands. Also, in 1997 Fannie Mae
issued the first mortgage-backed security to be backed 100 percent by
loans to Native Americans and approved its first product for Native
Hawaiian homelands. A more detailed description of RHS' and Fannie
Mae's efforts is in appendix III.
--------------------
\18 Fannie Mae is a government-sponsored enterprise that, among other
things, purchases residential mortgages from lenders in the secondary
mortgage market.
NAVAJO PARTNERSHIP FOR
HOUSING, INC.
-------------------------------------------------------- Letter :5.2.2
The Navajo Partnership for Housing, Inc., is a partnership of
residents, tribal and nontribal government representatives, and the
business community that, among other things, creates opportunities
for working Navajo families with moderate to high incomes to own
their homes. According to the Executive Director of the partnership,
the Navajos will need about 20,000 additional housing units by the
year 2000. The Director also told us that Navajo Tribe members need
conventional home purchase lending because traditional HUD housing
programs are not fully addressing their needs. The Director added
that conventional home purchase lending is important for tribal
economic development because equity in homes can provide a source of
capital for business and job creation on the reservation.
The partnership's initial goals are to (1) develop a guide that
describes the home purchase lending process and homeownership
responsibilities, (2) counsel 300 families in preparation for
homeownership, (3) assist in the development of 150 housing units,
and (4) attract over $10 million in private capital for
homeownership. The guide will describe the processes required for
approving and closing home purchase loans, including credit reviews,
and leasehold and title clearances.
In addition, the partnership plans to identify potential borrowers
for conventional home purchase loans and to provide home buyer and
credit counseling to all interested Navajo families. The
partnership's Executive Director told us that counseling is very
important because many Navajos have no experience with getting home
loans or dealing with private lenders and will be first-generation
home buyers. The importance of counseling for Navajo Tribe members
became evident in 1996 when the partnership counseled 800 families to
determine their eligibility for and interest in obtaining
conventional home purchase loans. Of these 800 families, the
partnership has been working with 70 families interested in
homeownership, but only 1 of the families could be financially
prequalified for a conventional home purchase loan. The partnership
is counseling the other families to help them resolve financial and
other problems so that they can obtain home purchase loans.
To address lenders' concerns about potential loan defaults, the
partnership has arranged for lenders to contact the partnership
before borrowers become significantly delinquent. The partnership
plans to counsel delinquent borrowers in an effort to make the loans
current and avoid foreclosure. According to the partnership's
Executive Director, the lenders are pleased with this arrangement
because it will save them money in servicing the loans. Also, he
told us many tribe members are more satisfied with being counseled by
the partnership than by a lender's representative.
OTHER LENDING INITIATIVES
FOR NATIVE AMERICANS ON
TRUST LANDS
-------------------------------------------------------- Letter :5.2.3
The Office of the Comptroller of the Currency (OCC)\19 and the
Federal Home Loan Bank (FHLBank) System\20 have efforts under way to
address the broader issue of Native Americans' access to financing
and capital. These efforts, if successful, could expand conventional
home purchase lending for Native Americans on trust lands.
In 1994, OCC launched a three-part strategy to improve financial
services for Native Americans on trust lands that encompasses
-- vigorous enforcement of the federal fair lending and community
reinvestment statutes to eliminate discrimination and promote
opportunities for Native Americans;
-- the creation of partnerships among lenders, tribal governments,
and community organizations to promote information-sharing and
the development of innovative solutions to the financial
services problems of Native Americans; and
-- educational efforts to help lenders and Native Americans
understand and address the unique set of legal and culture
complexities that make lending on trust lands more challenging
than lending in other low- and moderate-income communities.
OCC, along with the other federal financial supervisory agencies,\21
revised the Community Reinvestment Act (CRA) regulations to
specifically inform banks that lending, investing, and providing
banking services to Native Americans on trust lands will receive
favorable regulatory consideration. The act was designed to
encourage banks to provide credit to their entire market areas,
including low- and moderate-income areas. It requires federal bank
and thrift regulators to evaluate, during periodic examinations, the
extent to which banks are fulfilling their lending, investment, and
service responsibilities in their areas. On the basis of these
assessments, the regulators assign the banks overall ratings, ranging
from outstanding to substantial noncompliance. An institution's CRA
rating may affect approval by the regulators of certain types of
applications and the public's perception of the institution. The
regulators are required to take a depository institution's CRA rating
into account when considering applications for expansions, such as
mergers and acquisitions.
Through its Affordable Housing Program and its Community Investment
Program, the FHLBank System can help support a variety of low-income
housing initiatives, including those on Native American trust lands.
The Affordable Housing Program provides direct subsidies or
reduced-rate loans to financial institutions to help them support the
development of owner-occupied or rental housing that is affordable to
households with incomes below 80 percent of the area median. Lenders
pass on the subsidies to developers of affordable housing, such as
Indian housing authorities, tribal councils, or community development
corporations. The Community Investment Program provides long-term
mortgage funds essentially at cost to lenders to facilitate
homeownership for households with incomes below 115 percent of the
area median. Both programs, which are paid for by the FHLBank
System's earnings, can be used with federal guarantee or insurance
programs to support a private lender's home purchase lending. In
addition, a tribal housing corporation, Indian housing authority, or
tribally designated housing entity may become a nonmember mortgagee
of the particular FHLBank serving the area and become eligible for
advances (loans) directly from the FHLBank. In 1996, approximately
$777,000 in funds from the Affordable Housing Program were made
available to benefit Native Americans.
--------------------
\19 The Office of the Comptroller of the Currency (OCC) is an
independent bureau of the Department of the Treasury. As a financial
regulatory body, OCC oversees about 2,800 federally chartered banks.
OCC promotes a stable financial system by supervising and regulating
national banks to ensure they adhere to sound management principles
and comply with the law.
\20 The FHLBank System is a government-sponsored enterprise, a
federally chartered, privately owned system of 12 district banks.
Its purpose is to facilitate the extension of mortgage credit. It
does this by lending (in the system's terminology "making advances")
to its stockholders/members, which in turn make mortgage loans to
home buyers.
\21 The other federal financial supervisory agencies are the Board of
Governors of the Federal Reserve, the Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision.
NEW LAW'S EFFECT ON
CONVENTIONAL HOME PURCHASE
LENDING ON TRUST LANDS IS
UNCERTAIN
------------------------------------------------------------ Letter :6
The extent to which the Native American Housing Assistance and
Self-Determination Act of 1996 (NAHASDA) will increase conventional
home purchase lending for Native Americans on trust lands is
uncertain. The act contains provisions that allow tribes to leverage
grant funds and to extend land lease terms from 25 to 50 years.
However, whether tribes can or will use leveraged funds to encourage
conventional home purchase lending on trust lands is uncertain, and
many tribes' land lease terms already exceeded 25 years.
A major objective of NAHASDA, which became effective October 1, 1997,
is to promote the development of private capital markets and to allow
those markets to operate and grow. To accomplish this objective,
NAHASDA authorizes HUD to make block grants to tribes that submit
housing plans that comply with the program's requirements. Tribes
that receive block grant funds will be able to leverage some of the
funds by creating partnerships with private lenders for the
acquisition, new construction, reconstruction, or rehabilitation of
affordable housing. However, NAHASDA does not require tribes to use
leveraged grant funds to encourage conventional home purchase lending
on trust lands. The Acting Deputy Assistant Secretary for HUD's
Office of Native American Programs told us that while NAHASDA will
provide additional housing to Native Americans, it is difficult to
predict how tribes will use leveraged funds or whether tribes' use of
such funds could result in expanded conventional home purchase
lending on trust lands.
In addition, NAHASDA amended federal law to allow for a lease term on
tribal trust lands of up to 50 years. Previously, many tribes had
25-year leasing authority, which, with BIA's approval could have been
renewed for another 25 years. The Comptroller of the Currency, in
its in July 1997 Guide to Mortgage Lending in Indian Country, stated
that there were some concerns that the former 25-year limit may have
discouraged some financial institutions from extending home purchase
loans on trust lands, since many loans carry a 30-year term. But
whether this provision will encourage more conventional home purchase
lending on Native American trust lands is questionable, according to
the Acting Deputy Assistant Secretary, because many tribes already
had lease terms that either extended well beyond 25 years or were for
25 years with an automatic 25-year extension. The Navajo Tribe, for
example, gives its members 65-year leases. The Acting Deputy
Assistant Secretary said that she was not aware of any situation in
which a private lender had not made a home purchase loan on Native
American trust lands because land lease terms expired after 25 years.
She told us that HUD expected to issue regulations implementing
NAHASDA in early 1998.
CONCLUSIONS
------------------------------------------------------------ Letter :7
Privately supported opportunities for Native Americans to own homes
on trust lands are limited. If private mortgage lenders made more
conventional home purchase loans to Native Americans on trust lands,
they could help expand homeownership opportunities and reduce the
burden on government agencies to design, administer, and finance
special homeownership programs for these Americans. However,
formidable barriers exist, such as limitations on the use of trust
lands as collateral. Nevertheless, homeownership initiatives
undertaken by a few private lenders and some public and private
organizations demonstrate that there is some potential for overcoming
these barriers.
While these efforts are noteworthy, conventional home purchase loans
are unlikely to become a major source of financing for Native
Americans on trust lands. Even if the barriers to conventional home
purchase lending are eliminated, the economic status of many Native
Americans on trust lands may preclude them from qualifying for these
loans. The small number of home purchase loans made to Native
Americans on trust lands, even when private lenders are protected
against most losses by federal mortgage guarantee and insurance
programs, illustrates the limited potential for conventional home
purchase loans for Native Americans on trust lands.
AGENCY COMMENTS
------------------------------------------------------------ Letter :8
We provided the departments of the Interior and Housing and Urban
Development with a draft of this report for their review and comment.
We received written comments on the draft report from Interior. (See
app. VI.) In addition, the Department of Housing and Urban
Development's Acting Deputy Assistant Secretary for Native American
Programs provided us with two changes that clarified information
contained in the report, which we incorporated. We also discussed
applicable sections of this report with officials of the Federal
National Mortgage Association; the Navajo Partnership for Housing,
Inc.; Washington Mutual Bank; Associated Bank of Green Bay; First
Heritage Bank; First State Bank of Rolla; the Office of the
Comptroller of the Currency; the Federal Housing Finance Board;\22
the Rural Housing Service; and the Department of Veterans Affairs.
We incorporated these organizations' clarifying comments into the
report where appropriate.
Interior expressed concern that our conclusions placed too much
emphasis on the "trust" status of lands and commented that there are
federal agencies that routinely make loans on trust lands and three
of the four barriers to conventional home purchase loans cited in our
report are not related to the trust status of the lands.
Specifically, Interior stated that the limitations discussed in our
report are the concerns of private mortgage lenders and that federal
agencies, such as the Department of Agriculture's Farm Service
Agency, routinely make farm and ranch operations loans on trust
lands. Interior also commented that the Farm Service Agency also had
many concerns about mortgages on trust lands, but it became
knowledgeable of the process and now makes numerous loans. Private
mortgage lenders need to do the same, Interior stated.
Our assessment of the barriers to conventional home purchase
financing focused on trust lands because of the Chairman of the
Senate Committee on Indian Affairs' interest in increasing
homeownership opportunities for Native Americans on such lands.
About 1.2 million Native Americans, or 60 percent of all Native
Americans, live on trust lands or in the surrounding counties.
Private mortgage lenders, as they become knowledgeable of the process
of making home purchase loans on trust lands, may increase the number
of such loans. However, our concern, as pointed out in our report,
is whether conventional home purchase loans are likely to become a
major source of financing for Native Americans on trust lands. We
believe the small number of home purchase loans made to Native
Americans on trust lands, even when private lenders are protected
against most losses by federal mortgage guarantee and insurance
programs, illustrates the limited potential for such conventional
home purchase loans. Also, the farm and ranch operations loans made
by the Farm Service Agency on trust lands differ in important ways
from the loans that are the focus of our report--conventional home
purchase loans. The Farm Service Agency's loans are made or
guaranteed by the federal government, which incurs all or most of the
loss that may occur if the loans are not repaid. Conventional home
purchase loans are made by private lenders without federal
assistance, such as federal loan guarantees or insurance. Losses on
these loans are absorbed by private lenders or other entities in the
mortgage finance market.
Regarding Interior's comment that three of the four barriers cited in
our report--(1) uncertainty about recovering funds in the event of a
foreclosure, (2) unfamiliarity with the tribal court procedures
associated with foreclosure, and (3) the absence of tribal housing
ordinances--are not related to the trust status of the lands, we
believe that it is in fact because of the trust status that these
barriers arise. Generally, on privately held lands, lenders are not
uncertain about whether they can recover outstanding loan balances if
foreclosures occur. For example, if a borrower defaults and a
foreclosure results, a lender has the ability to take possession of
the collateral that in many cases is the land and the improvements on
that land. It should also be noted that our report discusses six
barriers to conventional home purchase loans and not four as stated
by Interior.
Interior also provided us with changes that clarified information in
the report on the transfer and definition of trust lands, the cost
and time required to eliminate the backlog of requests for title
documents, and the cost to examine titles by and the number of land
ownership interests under the jurisdiction of the Aberdeen Land
Titles and Records Office. We incorporated the clarifications in the
report.
--------------------
\22 The Federal Housing Finance Board has regulatory and supervisory
oversight responsibility for the 12 Federal Home Loan Banks. The
Board ensures that the Federal Home Loan Banks fulfill their public
policy mission of facilitating residential mortgage lending, among
other missions.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9
To determine the number of conventional home purchase loans made on
Native American trust lands, we asked the Bureau of Indian Affairs
(BIA) to survey its 83 Agency Offices in the continental United
States to identify the number of such loans these offices had
approved from calendar year 1992 through 1996. To identify the major
barriers preventing conventional home purchase lending on Native
American trust lands, we reviewed studies and reports from 1983 to
the present. (See the bibliography for a list of these studies and
reports.) We also visited and interviewed members of the Navajo Tribe
and the Oneida Tribe of Indians of Wisconsin and lenders that made
conventional home purchase loans on Native American trust lands. To
document the efforts being made to facilitate conventional home
purchase lending to Native Americans on trust lands, we analyzed
BIA's survey results and interviewed representatives of the
Department of Housing and Urban Development (HUD), the Federal
National Mortgage Association (Fannie Mae), the National American
Indian Housing Council, tribes, and lending organizations to locate
lenders that made such loans during the 5-year period ending in
calendar year 1996. Moreover, we interviewed representatives from
Fannie Mae, the Navajo Partnership for Housing, Inc., and other
appropriate organizations to identify initiatives under way to
facilitate conventional home purchase lending for Native Americans on
trust lands.
To learn whether implementing the Native American Housing Assistance
and Self-Determination Act of 1996 will result in more conventional
home purchase loans being made to Native Americans on trust lands, we
reviewed the act; reviewed literature on the act; and interviewed
representatives of HUD, lending organizations, and tribal
organizations to gain their perspectives on the law. To determine
whether BIA's backlog of requests for certifying documents has
deterred conventional home purchase lending to Native Americans on
trust lands, we visited three of BIA's five Land Titles and Records
Offices in the continental United States: Aberdeen, South Dakota;
Albuquerque, New Mexico; and Portland, Oregon. We visited these
three offices because, among other things, they process most of the
documents related to the status of trust lands. Appendix VII
provides additional details on our scope and methodology. We
conducted our review from April 1997 through January 1998 in
accordance with generally accepted government auditing standards.
---------------------------------------------------------- Letter :9.1
We are sending copies of this report to other appropriate Senate and
House committees; the Secretary of HUD; the Secretary of the
Interior; the Commissioner of Indian Affairs, BIA; and the Director,
Office of Management and Budget. We will make copies available to
others on request.
Please call me at (202) 512-7631 if you or your staff have any
questions. Major contributors to this report are listed in appendix
VIII.
Sincerely yours,
Stanley J. Czerwinski
Associate Director, Housing and Community
Development Issues
BIA'S BACKLOG OF REQUESTS FOR
CERTIFYING DOCUMENTS HAS NOT
DETERRED CONVENTIONAL HOME
PURCHASE LENDING TO NATIVE
AMERICANS ON TRUST LANDS
=========================================================== Appendix I
Before transactions that affect the status of trust lands, including
conventional home purchase loans, can be legally completed, the
Bureau of Indian Affairs (BIA) must issue a certified title status
report for the land that, among other things, certifies current
ownership. Although BIA currently has a backlog of requests for
title documents that it estimates will take 113 staff years to
eliminate, the backlog has not been a deterrent to conventional home
purchase lending to Native Americans on trust lands, according to the
lenders we interviewed. If the volume of conventional home purchase
loans were to increase, however, BIA's backlog could become a
deterrent.
LENDERS THAT MADE CONVENTIONAL
HOME PURCHASE LOANS DID NOT
EXPERIENCE DELAYS IN CERTIFYING
THE LEGAL STATUS OF NATIVE
AMERICAN TRUST LANDS
--------------------------------------------------------- Appendix I:1
The U.S. government holds title to Native American trust lands to
prevent loss of these lands to individuals and to state and local
governments. Thus, most trust lands cannot be encumbered, conveyed,
taxed, or used as collateral for the repayment of a debt without the
approval of the Secretary of the Interior. Within the Department of
the Interior, BIA is responsible for protecting trust lands from
"alienation," that is, for preventing the transfer of the land's
ownership to non-Native Americans. Key components of BIA's
responsibilities are maintaining land ownership records and title
documents and issuing title status reports to lenders certifying the
legal description of tracts of trust lands. BIA also certifies
current ownership, including any applicable conditions, exceptions,
restrictions, or any encumbrances on record, and determines whether
the lands are held in tribal or individual trust.
All commercial businesses and financial institutions rely on
certified title status reports (the official land titles) to develop,
mortgage, or secure trust lands and resources. Thus, if the
certified title is not accurate and up to date, a business or
financial institution that is conducting business with tribes or
Native Americans either will not enter into a transaction until the
certified title can be obtained or will rely on an out-of-date or
inaccurate title to their detriment. In the continental United
States, BIA's five Land Titles and Records Offices (LTRO)--and three
smaller Land Service Offices--issue the certified title status
reports lenders need before they make home purchase loans on trust
lands.\1 Despite a large backlog of requests for title documents,
BIA's certification process for trust lands has not been a deterrent
to conventional home purchase lending. When asked about barriers to
lending, the four lenders that made 82 of the 91 conventional home
purchase loans on trust lands during the 5-year period ending in
calendar year 1996 did not identify BIA's issuance of certified title
status reports as a barrier. During our visits to three of the five
LTROs, we found that two of them made issuing certified title status
reports for mortgages their highest priority. These LTROs--Aberdeen
and Portland--processed certified title status report requests for
conventional home purchase loans within a few days to a few weeks.
The remaining LTRO we visited, Albuquerque, generally prioritized
requests for certified title status reports by the dollar value of
the transactions. We were unable to determine how long the
Albuquerque LTRO took to process requests because no conventional
home purchase lending activity occurred on trust lands within its
jurisdiction over the 5-year period we studied.
Few conventional home purchase loans have been made to Native
Americans on trust lands. However, should the volume of requests for
certified title status reports for these loans increase, BIA's
certification process could become a barrier because of the
substantial backlog of requests for title documents that need to be
reviewed or cleared before loans are approved. BIA estimated that
eliminating the backlog that existed as of April 30, 1997, would cost
the agency over $8 million and take over 113 staff years at current
levels. Table I.1 shows BIA's estimated cost and time to eliminate
the processing backlog by function.
Table I.1
Estimated Cost and Time to Eliminate
BIA's Backlog at All LTROs, as of April
30, 1997
Time to
Functions and Salary cost to eliminate
business Total backlog eliminate backlog (staff
processes (documents) backlog years)
---------------- ---------------- ---------------- ----------------
Record titles 31,798 $373,295 10.69
Process-encode 25,363 394,583 8.21
titles
Process-encode 7,616 286,786 4.29
probates
Manage titles 177,232 839,263 8.42
Determine titles 14,374 3,012,023 26.43
Modify probates 7,616 939,384 6.73
Certify title 68,449 2,174,586 48.54
status maps
======================================================================
Total 332,448 $8,019,920 113.31
----------------------------------------------------------------------
Source: Bureau of Indian Affairs.
In September 1994 and subsequently in June 1996, we reported that BIA
had a serious backlog in ownership determinations and record keeping
that could have a significant impact on the accuracy of trust fund
accounting data.\2 Moreover, in our 1994 report we recommended that
the Secretary of the Interior direct the Assistant Secretary for
Indian Affairs to take immediate action to eliminate the backlog by
reprogramming existing resources, hiring temporary employees, or
contracting for services.
In response to our recommendation, BIA issued a draft report on its
Related Systems Improvement Project that recommended hiring
contractors to bring various records, including land and ownership
records, up to date. Because of budget reductions, however, BIA did
not acquire the contracting services nor did it hire additional
staff. In an April 1997 strategic plan for implementing Indian trust
fund reforms, Interior's Special Trustee for American Indians called
for the elimination of the backlog of title and ownership
determinations and record keeping. Also in April 1997, the Deputy
Commissioner for Indian Affairs told us that she had assembled a team
of Land Titles and Records Officers to visit each LTRO. In August
1997, BIA headquarters' Land Records Officer told us that the team
had completed its visits and had determined the extent of, and
reasons for, the backlog. BIA's 1997 Government Performance and
Results Act Strategic Plan states that BIA's goal is to eliminate the
backlog by the year 2002.
--------------------
\1 LTROs in the continental United States are located in Aberdeen,
South Dakota; Albuquerque, New Mexico; Anadarko, Oklahoma; Billings,
Montana; and Portland, Oregon. The smaller Land Service Offices are
located in Sacramento, California; Muskogee, Oklahoma; and Arlington,
Virginia.
\2 Financial Management: Focused Leadership and Comprehensive
Planning Can Improve Interior's Management of Indian Trust Funds
(GAO/AIMD-94-185, Sept. 22, 1994) and Financial Management:
Interior's Efforts to Reconcile Indian Trust Fund Accounts and
Implement Management Improvements (GAO/T-AIMD-96-104, June 11, 1996).
BIA'S BACKLOG OF TITLE STATUS
REPORTS WILL GROW AND MAY
AFFECT CONVENTIONAL HOME
PURCHASE LENDING EFFORTS
--------------------------------------------------------- Appendix I:2
BIA estimates that its backlog of title status reports will increase
in the future because of fractionated land ownership on trust lands
and the U.S. Supreme Court decision in Babbitt v. Youpee, 117 S.
Ct. 727 (1997). Some Native American land ownership becomes
fractionated as the ownership interests are passed on through several
generations of multiple heirs, with more and more people coming to
own smaller and smaller interests in the land over time. The Indian
Land Consolidation Act, 25 U.S.C. 2201, et seq., as amended, among
other things, attempted to reduce the extent of fractionization
within a reservation's boundaries. A key provision of that act,
section 207, as amended, generally provided that if an individual
Native American has an ownership interest of 2 percent or less in a
tract of land, that interest transfers to the tribe upon the
individual's death, provided that (1) it is not willed to another
owner in the same tract and (2) the interest is not capable of
earning $100 or more in any of the 5 years following the individual's
death.\3 BIA had estimated that legislation eliminating or
consolidating fractionated ownership interests of 2 percent or less
might eliminate or consolidate over half of the title records.
In February 1992, we reported that land fractionization had continued
to increase at a rapid pace.\4 We pointed out that in the years since
the Indian Land Consolidation Act's enactment, the number of small
ownership interests (2 percent or less) at the 12 reservations that
we reviewed had more than doubled, from about 305,000 to over 620,000
records.
In addition, in Babbitt v. Youpee, the U.S. Supreme Court held that
the amended section 207 of the Indian Land Consolidation Act was
unconstitutional. This 1997 decision will place a significant
workload on BIA because the agency must modify probate court orders
and title data transactions to implement the Court's decision.
Administrative law judges across the country are issuing probate
modification orders that direct BIA to distribute to the heirs at law
thousands of real property interests that have been held in abeyance
or previously distributed to the tribe involved. According to BIA,
these probate orders will add to the business processing workloads at
each LTRO and Agency Office nationwide. As of July 1997, BIA had not
determined the costs and time that this additional processing effort
will require.
The Manager of the Aberdeen LTRO told us that fractionated land
ownership is continuing to increase and is a major reason for the
title status report backlog in his office's jurisdiction. As
fractionation increases, processing title status reports becomes more
complex and time-consuming. An analysis by the Aberdeen LTRO of a
particular land allotment it administers revealed, for instance, that
the number of owners had increased from 1 in 1900 to 962 in 1990,
while the number of documents affecting its chain-of-title increased
from 1 to 306.\5
The Aberdeen manager estimated that with current staff levels it
would cost about $4,000 and take about 141 overtime hours to examine
the title of this one allotment, starting from the original trust
patent. He also told us his office has over 1 million individual
land ownership interests in its jurisdiction.
The effects of BIA's backlog on federal and local governments,
commercial businesses, tribes, and individual tribe members are many
and generally carry substantial liability should parties rely on
federal Indian land titles that are not up to date or accurate. The
right to convey (e.g., through a deed or probate) or encumber (e.g.,
through a lease or right-of-way) interests in trust lands or
resources is based on the title ownership in the lands or resources
as determined and certified by BIA. Thus, the lack of up-to-date
titles can result in (1) many land transactions being delayed until
titles can be obtained, (2) the wrong people or the wrong quantum of
interest being involved in the transactions, and (3) decisions to
proceed with land transactions without obtaining the required
up-to-date and certified land titles.
--------------------
\3 Tribes could override this provision through the adoption of their
own codes governing the disposition of fractionated interests.
\4 Indian Programs: Profile of Land Ownership at 12 Reservations
(GAO/RCED-92-96BR, Feb. 10, 1992).
\5 "Chain-of-title" is the chronological order of the conveyancing of
a parcel of land, from the original owner to the present owner(s).
MAP OF SELECTED INDIAN
RESERVATIONS IN THE UNITED STATES
========================================================== Appendix II
(See figure in printed
edition.)
Note: This map shows the
general locations of a number
of Indian reservations in the
United States.
(See figure in printed
edition.)
FEDERAL PROGRAMS PROVIDING HOUSING
ASSISTANCE SPECIFICALLY TO NATIVE
AMERICANS
========================================================= Appendix III
Through eight programs operated by four different agencies, the
federal government provided assistance totaling about $325 million in
fiscal year 1997 for the construction, acquisition, and operation of
housing for Native Americans. These programs include nonconventional
(federally supported) home loan assistance programs and rental
assistance programs.
FEDERALLY SUPPORTED
HOMEOWNERSHIP PROGRAMS FOR
NATIVE AMERICANS
------------------------------------------------------- Appendix III:1
The Department of Housing and Urban Development (HUD), the Department
of Veterans Affairs (VA), and the Department of Agriculture's Rural
Housing Service (RHS) operate housing programs specifically intended
to help Native Americans become homeowners. HUD's and RHS' programs
guarantee or insure private lenders against most losses, whereas VA's
program provides direct loans to Native Americans on trust lands. In
addition, HUD, VA, and RHS operate other homeownership assistance
programs that Native Americans can use. Moreover, broader population
groups can also use these programs. Table III.1 shows the funding
for homeownership assistance programs and the programs' results for
the fiscal year 1997.
Table III.1
Funding for and Results of Federally
Supported Homeownership Assistance
Programs for Native Americans, Fiscal
Year 1997
(Dollars in millions)
Number of
Program Funding loans
---------------------------------------- ------------ --------------
HUD Section 184 Loan Guarantee $3.0\a 155
FHA Section 248 Mortgage Insurance 1.4 18
VA Native American Home Loans 2.6 32
RHS Rural Housing Native American Pilot 0.0 0
----------------------------------------------------------------------
\a The $3 million appropriated for fiscal year 1997 is a credit
subsidy for HUD's Section 184 loans initiated during fiscal year
1997. The 155 loans represent loans closed in fiscal year 1997 and
as such do not relate to the $3 million appropriated to initiate
loans in that year.
A description of the federal programs that provide homeownership
opportunities specifically for Native Americans follows.
HUD'S SECTION 184 LOAN
GUARANTEE PROGRAM
----------------------------------------------------- Appendix III:1.1
Section 184 of the Housing and Community Development Act of 1992
authorizes HUD to operate an Indian Home Loan Guarantee Program to
provide Native American families and Indian housing authorities
access to sources of private financing that might otherwise not be
available without a federal guarantee. Under the program, HUD
guarantees loans made by private lenders to Native American families,
tribes, or Indian housing authorities for constructing, acquiring, or
rehabilitating single-family dwellings that are standard housing and
are located on trust lands or lands under the jurisdiction of a
tribe. The program aids families with incomes that exceed the limits
for other assisted housing programs. The program can also indirectly
benefit low- and moderate-income Native Americans. For example, HUD
officials told us that when tribes or Indian housing authorities
obtain Section 184 loans, they use the funds to construct rental
homes for low- and moderate-income Native Americans. In fiscal year
1997, lenders closed 155 loans under the program.
FHA'S SECTION 248 MORTGAGE
INSURANCE PROGRAM
----------------------------------------------------- Appendix III:1.2
HUD's Federal Housing Administration's (FHA) Section 248 Mortgage
Insurance Program was established in 1983. Under the program, FHA
insures mortgage loans for Native Americans on trust lands whose
higher incomes disqualify them from other federally subsidized
housing programs available through the Indian housing authority.
Fewer types of land are eligible for the Section 248 loans than for
the Section 184 loans. For example, homes on privately held lands
are not eligible for the Section 248 program. Section 248 insured
loans are available for both new construction and existing
properties. In fiscal year 1997, FHA insured 18 loans totaling $1.4
million. HUD is considering requesting that the Section 248 program
be terminated because of the Office of Management and Budget's
interest in eliminating underutilized programs.
VA'S NATIVE AMERICAN HOME
LOAN PROGRAM
----------------------------------------------------- Appendix III:1.3
VA guarantees home loans to all eligible veterans and makes direct
loans to Native American veterans to purchase, construct, or
rehabilitate homes on trust lands. VA's guaranteed and direct loans
are available to all eligible Native American veterans who meet
credit and income requirements. In addition, the Native American
Home Loan Program, a pilot program enacted in 1992, specifically
targets Native American veterans on reservations. Native American
veterans can borrow up to $80,000 to purchase, construct, or improve
homes on tribal or individual trust lands. The tribe must sign a
memorandum of understanding with VA verifying that foreclosure, lien,
and eviction procedures have been enacted and establishing the
jurisdiction of the tribal court. In fiscal year 1997, VA made 32
loans totaling $2.6 million.
RHS' RURAL HOUSING NATIVE
AMERICAN PILOT PROGRAM
----------------------------------------------------- Appendix III:1.4
The Rural Housing Native American Pilot loan program was jointly
developed by RHS and Fannie Mae and implemented in December 1995.
Under the program, RHS guarantees home loans made by private lenders
to individual Native Americans. The loans are for low- and
moderate-income families who are first-time home buyers and who are
located in rural areas on, among other types of property, tribal
trust lands. Tribes must be approved by RHS and Fannie Mae to
participate in the pilot before applicants are eligible for loans
guaranteed by RHS. Fannie Mae must review the tribe's laws to
determine whether they provide adequate protection for mortgage
lending. The tribe must enter into a memorandum of understanding
with RHS and Fannie Mae to, among other things, ensure that lenders
can enforce mortgage-related documents and can foreclose and evict
through the tribal court if the need arises. Currently 21 tribes in
11 states are eligible for program approval. Private lenders had not
made any loans under the program as of December 4, 1997.
FEDERALLY SUPPORTED RENTAL
ASSISTANCE PROGRAMS FOR NATIVE
AMERICANS ON TRUST LANDS
------------------------------------------------------- Appendix III:2
HUD and BIA also operate rental assistance programs specifically for
Native Americans on trust lands. HUD administers the most widely
used programs, which provide funding for lease purchase and rental
subsidy purposes. BIA provides grants to Native Americans for
housing improvements. Table III.2 shows the funding for the rental
assistance programs and the programs' results for fiscal year 1997.
Table III.2
Funding for and Results of Federally
Supported Rental Housing Programs for
Native Americans on Trust Lands, Fiscal
Year 1997
(Dollars in millions)
Program Funding Results
---------------------------------- ---------------- ----------------
HUD Mutual Help $98.8 770 units
HUD Rental Housing 101.2 764 units
HUD Indian Housing Authorities 101.8 Subsidized
Operating Subsidies expenses\a
BIA Housing Improvement Program 16.0 556 units
----------------------------------------------------------------------
\a The operating subsidies cover Indian housing authorities' expenses
for preventive maintenance, planning, rent collection, tenant
counseling, and contracting.
ADDITIONAL BARRIERS IMPEDE LENDERS
FROM MAKING CONVENTIONAL HOME
PURCHASE LOANS TO NATIVE AMERICANS
ON TRUST LANDS
========================================================== Appendix IV
In addition to the barriers discussed in the body of this report, two
other barriers have made it difficult to attract private financing
for Native Americans to buy homes on trust lands: (1) the low
socioeconomic status of many Native Americans on trust lands and (2)
the remoteness of the Native American trust lands.
LOW SOCIOECONOMIC STATUS OF
MANY NATIVE AMERICANS ON TRUST
LANDS IS A BARRIER TO
CONVENTIONAL HOME PURCHASE
LOANS
-------------------------------------------------------- Appendix IV:1
Low income levels, the lack of credit histories, and seasonal,
unstable employment have meant that many Native Americans on trust
lands are often unable to qualify for conventional home purchase
loans. To finance a home, an individual must have an income adequate
enough to assure the lender that the loan can be repaid. In May
1996, the Urban Institute reported that low and unstable incomes were
rated as a major barrier to homeownership by about 85 percent of the
Indian housing authority directors and tribal staff surveyed.\1
According to the Executive Director of the Navajo Partnership for
Housing, Inc., many Navajo Tribe members with incomes adequate enough
for obtaining conventional home purchase loans may still have
inadequate credit histories. This official added that many Navajos
do not understand what type of credit history is necessary for
obtaining a conventional home purchase loan. Moreover, this official
told us, most Navajos do not have experience with private lenders and
will be first-generation home buyers.
--------------------
\1 The Urban Institute surveyed tribal leaders and Indian housing
authority officials at 36 representatively sampled tribal areas. See
Assessment of American Indian Housing Needs and Programs: Final
Report (Washington, D.C.: May 1996).
REMOTENESS OF NATIVE AMERICAN
TRUST LANDS INCREASES BUILDING
COSTS
-------------------------------------------------------- Appendix IV:2
As we reported in March 1997, the remoteness of some tribal lands has
created significant problems for housing development.\2 In contrast
to metropolitan areas, where basic infrastructure systems (sewers,
landfills, electricity, water supply and treatment, and paved roads)
are already in place, remote tribal areas require a large capital
investment to create these systems to support new housing. Where
infrastructure does not exist, housing must be built that is
self-contained. For example, much of the housing constructed on
Navajo lands is scattered across remote sites. According to one
builder, the cost to provide infrastructure to these homesites is
over $20,000 per home. Moreover, housing built in such locations
must include water cisterns and septic tanks. In addition, homes on
the Navajo lands are mainly solar-powered. If housing is developed
in subdivisions, the infrastructure costs are lower but still
significant. For instance, at one particular housing development on
the Navajo reservation--containing a mix of rental and privately
owned units--$8 million is needed to develop the necessary
infrastructure (i.e., water lines and sewer system connections).
--------------------
\2 Native American Housing: Information on HUD's Housing Programs
for Native Americans (GAO/RCED-97-64, Mar. 28, 1997).
WASHINGTON MUTUAL BANK'S PROCESS
FOR MAKING CONVENTIONAL HOME
PURCHASE LOANS ON NATIVE AMERICAN
TRUST LANDS
=========================================================== Appendix V
(See figure in printed
edition.)
(See figure in printed
edition.)
\a According to BIA officials in Washington, D.C., BIA Headquarters'
credit reviews of trust mortgages began in December 1996 and are
temporary. These officials told us that BIA plans to issue proposed
rules early in 1998 that will govern how BIA's Area Offices will
conduct credit reviews of trust mortgages.
(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
THE INTERIOR
=========================================================== Appendix V
(See figure in printed edition.)
The following are GAO's comment on the U.S. Department of the
Interior letter dated January 5, 1998.
GAO COMMENTS
--------------------------------------------------------- Appendix V:1
1. Interior inadvertently refers to the Farm Service Agency here as
the Farm Services Administration.
SCOPE AND METHODOLOGY
========================================================= Appendix VII
To determine the number of conventional home purchase loans made on
Native American trust lands, we asked BIA to survey its 83 Agency
Offices in the continental United States to identify the number of
such loans they had approved. We used this approach because (1) BIA
did not have a centralized database containing information on home
purchase loans on trust lands, (2) BIA officials were not confident
that the 83 Agency Offices transferred all their data to the 12 Area
Offices that oversee the Agency Offices, and (3) the Agency Offices'
mortgage information did not show whether a mortgage was for the
purchase of a conventional or a manufactured home, or was for the
refinancing of a home, or whether it was a business loan, or a
federal guaranteed or conventional loan. At our request, BIA asked
its Agency Offices to identify the number of conventional home
mortgage loans approved from calendar year 1992 through 1996 on
Native American trust lands. We interviewed the BIA officials who
responded to verify that the loans identified were conventional home
purchase loans on Native American trust lands and to identify the
lenders involved.
To identify the major barriers preventing conventional home purchase
lending on Native American trust lands, we reviewed reports and
studies from 1983 to the present. (See the bibliography for a list
of these reports and studies.) We also visited and interviewed
members of the Navajo Tribe and the Oneida Tribe of Indians of
Wisconsin and lenders that made conventional home purchase loans on
Native American trust lands. Finally, we interviewed HUD and BIA
officials about the barriers preventing conventional home purchase
lending on Native American trust lands.
To document the efforts under way to facilitate conventional home
purchase lending to Native Americans on trust lands, we used BIA's
survey results and interviewed representatives of HUD, Fannie Mae,
the National American Indian Housing Council, tribes, and lending
organizations to locate lenders that made conventional home purchase
loans on Native American trust lands during the 5-year period ending
in calendar year 1996. We interviewed and obtained information from
the eight lenders on their processes and additional efforts involved
in making the 91 loans. In addition, we obtained information from
the eight lenders on the reasons for making loans, the barriers
encountered, and the actions taken to overcome the barriers.
Moreover, we interviewed representatives from Fannie Mae; the Federal
Home Loan Mortgage Corporation; the Navajo Partnership for Housing,
Inc.; the Office of the Comptroller of the Currency; HUD; the
Community Development Financial Investment Fund; the Housing
Assistance Council; and the National American Indian Housing Council
to identify the initiatives under way to facilitate conventional home
purchase lending for Native Americans on trust lands. For each
initiative identified, we obtained information on the program and the
latest information available on the program's outcomes.
To learn whether implementing the Native American Housing Assistance
and Self-Determination Act of 1996 will result in more conventional
home purchase loans being made to Native Americans on trust lands, we
reviewed the act; reviewed literature on the act; and interviewed
representatives of HUD, lending organizations, and tribal
organizations to gain their perspectives on the law.
To determine whether BIA's backlog of requests for certifying
documents has deterred conventional home purchase lending to Native
Americans on trust lands, we visited three of BIA's five Land Titles
and Records Offices in the continental United States: Aberdeen,
South Dakota; Albuquerque, New Mexico; and Portland, Oregon. We
visited these three offices because they process most of the
documents related to the status of trust lands. In addition, these
offices administer trust responsibilities for most of the trust lands
in the continental United States. We also interviewed lenders, tribe
representatives, and BIA and HUD officials, and obtained documents on
BIA's land titles and records processes.
MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION
Leslie Albin
Lynne L. Goldfarb
Robert Procaccini
LaSonya Roberts
Leslie A. Smith
DALLAS FIELD OFFICE
Luis Escalante, Jr.
Michael L. Mgebroff
BIBLIOGRAPHY
============================================================ Chapter 0
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*** End of document. ***