SECTION 184 INDIAN HOUSING LOAN GUARANTEE PROGRAM April

SECTION 184 INDIAN HOUSING LOAN GUARANTEE PROGRAM April 2012 U. S. Department of Housing and Urban Development

PROGRAM OVERVIEW • 1992 Housing and Community Development Act • Annual funding by Congress • Nationwide Program Section 184 Training, Sponsored by HUD

Guaranteed Loans Section 184 Training, Sponsored by HUD

LENDING IN INDIAN COUNTRY IS UNIQUE • Land status – Tribal Trust Land – Allotted Trust Land – Unrestricted Land • Underserved markets – Non-traditional credit – Limited access/exposure to financing – Manual underwriting Section 184 Training, Sponsored by HUD

Section 184 Training, Sponsored by HUD

184 PARTNERS • HUD 184 Program Staff • Lenders • Tribes • TDHEs (Tribally Designated Housing Entities) • BIA (Bureau of Indian Affairs) Section 184 Training, Sponsored by HUD

LENDER INCENTIVES/ OPPORTUNITIES • 100% guaranteed loan • Assign or foreclose • Up to 2. 5% loan origination fee on construction/rehab loans • Community Reinvestment Act (CRA) Section 184 Training, Sponsored by HUD

PARTNER ROLES AND RESPONSIBILITES Section 184 Training, Sponsored by HUD

WHAT DOES OLG/HUD DO? • Develops and implements policies • Conducts training and marketing • Underwrites the loan • Issues the Loan Guarantee Certificate Section 184 Training, Sponsored by HUD

WHAT DOES THE LENDER DO? • Lends the money! • Explains the 184 mortgage loan process and prepares the loan package • Serves as liaison between borrower and HUD • Underwrites the loan (Direct Guarantee approved) Section 184 Training, Sponsored by HUD

ELIGIBLE LENDERS • Bank, Savings & Loan, Credit Union • Mortgage Companies approved through FHA, VA or RD • FHA approved Brokers with 184 Program Sponsorship • Lenders/Tribe obtain approval through NAHASDA Section 184 Training, Sponsored by HUD

WHAT DOES THE TRIBE DO? • Implements foreclosure, eviction, lien & leasing procedures • Conducts environmental reviews • Completes land status form Section 184 Training, Sponsored by HUD

WHAT DOES THE TRIBE PROVIDE? • Land • Homeownership counseling • Financial Assistance • Infrastructure Section 184 Training, Sponsored by HUD

WHAT DOES BIA DO? • Serves as a trustee for tribal trust land • Approves lease/mortgage • Provides/updates title status reports – Records mortgage/lease • Underwrites/reviews loan package (if allotted/restricted) Section 184 Training, Sponsored by HUD

PROGRAM FEATURES AND REQUIREMENTS Section 184 Training, Sponsored by HUD

Who can apply for a 184 Loan? ELIGIBLE BORROWERS • Indian or Alaska Native individual enrolled in a Federally recognized tribe. Enrollment verification mandatory. • TDHE/IHA (Indian Housing Authority) • Tribe. Tribal federal designation available on Federal Register Section 184 Training, Sponsored by HUD

LOAN FEATURES • Term: 30 years or less • Fixed interest rate determined by lender • 1% guarantee fee • Minimal down payment requirement • No Adjustable Rate Mortgages • No commercial structures Section 184 Training, Sponsored by HUD

HOMEOWNERSHIP OPPORTUNITIES Purchase a house Rehabilitation of existing house Purchase and rehabilitation New construction – Manufactured – Modular/stick built • Refinancing • • Section 184 Training, Sponsored by HUD

PROPERTY REQUIREMENTS • Trust land or land within an Indian area • Single family (1 -4 units) – Examples include: house, duplex, tri-plex, four-plex, town home, manufactured/modular home • Manufactured Housing – Affixed to a permanent foundation – Manufactured after 6/15/76 Section 184 Training, Sponsored by HUD

LAND OWNERSHIP • Tribal trust land • Allotted individual trust land • Fee simple land in a defined Indian operating area Section 184 Training, Sponsored by HUD

LAND Tribal Trust Land • Land or interest in land held in trust by BIA for a Tribe • Land may not be encumbered or alienated • Leasehold interest established for a 50 year term • No land value Section 184 Training, Sponsored by HUD

LAND Allotted Individual Trust Land • Land or interest in land held in trust by the BIA for an individual Indian • Tribe has no interest in land • Subject to restrictions against alienation or encumbrance • Land value/equity Section 184 Training, Sponsored by HUD

LAND Fee Simple Land • Estate in land that is absolute or unrestricted • Owner can dispose of land – Subsequent sale of home and/or foreclosure; land home sold together • Located on reservation or within Tribe’s operating area for housing Section 184 Training, Sponsored by HUD

LOAN PROCESS FOR TRUST TRANSACTIONS Section 184 Training, Sponsored by HUD

LOAN PROCESS For TRUST TRANSACTIONS • Land status verified with tribe and/or BIA: – Title Status Report needed to verify individual allotment ownership – Land Status and Jurisdiction Form Section 184 Training, Sponsored by HUD

LOAN PROCESS For TRUST TRANSACTIONS • Documentation required from the Bureau of Indian Affairs – Tribal Trust • Certified TSR (1 years or less) with/without recorded lease • Executed lease Section 184 Training, Sponsored by HUD

LOAN PROCESS For TRUST TRANSACTIONS Underwriting the Title Status Report (Cont. ) – Individual Allotted Trust land • Certified TSR (6 months or less) • BIA approval to mortgage – Individual Allotted Trust Land with lease • Title Status Report with recorded lease • NO BIA approval to mortgage Section 184 Training, Sponsored by HUD

SECTION 184 LOAN PROCESSING Section 184 Training, Sponsored by HUD

LOAN ORIGINATION • Borrower contacts approved lender • Lender determines if borrower meets program eligibility – Native American (ID/Enrollment Card) – Tribe on 184 approved list – Indian operating area • Lender requests case number from HUD (funds reservation) Section 184 Training, Sponsored by HUD

Underwriting Components • Credit • Capacity • Collateral The underwriting review determines the borrower’s ability and willingness to repay the mortgage debt. Section 184 Training, Sponsored by HUD

Underwriting Components • The borrower’s ability to repay the debt is assessed by considering: • Income history and stability; • Employment history and stability • Debts • The borrower’s willingness to repay the mortgage debt is assessed by considering • Credit • Pay history Section 184 Training, Sponsored by HUD

INCOME Income - Types: – Salary or Wages – Overtime and Bonus – Commissions – Seasonal and Part Time – Retirement, Alimony, Child Support – Rental – Trust and Non-Taxable – Self Employment – Tribal Distribution Section 184 Training, Sponsored by HUD

What are we looking for? CREDIT HISTORY • Show borrower(s) payment pattern • Show previous/existing debt • Show court order judgments, collections and liens which may affect borrower’s ability to obtain a loan Note: Lack of Credit is not basis for denial Section 184 Training, Sponsored by HUD

CREDIT REVIEW (Cont. ) Credit Requirements: • No late payments within 12 months • No late mortgage payments within 12 months • No bankruptcy, judgments in 24 months (special circumstances reviewed on case by case basis) • No accounts reverting to collection in 12 months Lack of credit not grounds for rejection; alternative Training, Sponsored by credit accepted; 1 Section to 3184 sources. HUD

BORROWER’S INVESTMENT • Cash investment — difference between the mortgage loan and the cost to acquire the property • Range of investment — 1. 25% to 2. 25% based on maximum mortgage limit Section 184 Training, Sponsored by HUD

FUNDS TO CLOSE Borrower can obtain the down payment and closing cost funds from any of the following sources: • • • Saving/Checking Secured funds Gifts Cash Land equity • Sale of personal items • Sale of home proceeds • 401 K loan • Sale of Investments Section 184 Training, Sponsored by HUD

TRIBE/TDHE ASSISTANCE • Provide a gift or loan to borrower: – Gift letter – 2 nd mortgage letter – Recorded documents with the endorsement package • Tribal funds: – No restriction on use/amounts Section 184 Training, Sponsored by HUD

APPRAISAL • Market Approach Using FHA appraiser/guidelines • Cost Approach Trust land, rural areas • Types of Appraisals – Manufactured – Condominium – Standard 1 – 4 Units Section 184 Training, Sponsored by HUD

THE TRIBE OR TDHE AS BORROWER Section 184 Training, Sponsored by HUD

UNDEVELOPED MARKETS • Limited Housing Supply – Low turnover, vacancy rate – Limited availability of developed lots – Limited sales • Modest homes • Tribal developers – Financing generally grant based – Limited exposure/access to financial markets • Subsidies – Construction (grants, guarantees, interest rate) – Down payment & closing costs Section 184 Training, Sponsored by HUD

TRIBE/TDHE LOANS • When the Tribe or TDHE borrowers for the construction/purchase of rental property, they must demonstrate: – Property management skills – Rental and maintenance plan – Renters able to pay Section 184 Training, Sponsored by HUD

New Construction Section 184 Training, Sponsored by HUD

TRIBE/TDHE LOANS (Cont. ) • These properties are eligible for assumption by qualified borrowers: – Tribe/TDHE pays cash investment and loan payments during construction – Qualified Borrowers able to assume – After qualifying assumption, Tribe or TDHE is released from liability Section 184 Training, Sponsored by HUD

TRIBE/TDHE LOANS(Cont. ) Financial Capacity • Demonstrated ability to pay mortgage loan: – Credit History (Dunn & Bradstreet) – Sources of funds to close – Income – Liabilities Section 184 Training, Sponsored by HUD

TRIBE/TDHE LOANS (Cont. ) • Coverage of debt service • Skills, experience to undertake project • Demonstration of need • Marketing plan • Audited financial statements Section 184 Training, Sponsored by HUD

TRIBE/TDHE LOANS (Cont. ) • Evidence of authority to borrow • Evidence of ability to obtain deficiency judgment • Plans for projects exceeding 20 homes must be built in phases Section 184 Training, Sponsored by HUD

184 SINGLE CLOSE CONSTRUCTION LOANS Section 184 Training, Sponsored by HUD

CONSTRUCTION LOAN OPTIONS • 2 options available to borrowers: – Lender or Bank carries interim construction loan • 184 loan used to payoff construction loan; not closed or guaranteed until after house is complete – 184 single close construction loan Section 184 Training, Sponsored by HUD

SINGLE CLOSE CONSTRUCTION LOAN • One time Single Close • Construction starts within 60 days after closing • Mortgage payments begin after closing • 6 month construction period • Guarantee issued after closing Section 184 Training, Sponsored by HUD

SINGLE CLOSE REHAB LOANS • Acquisition or existing debt + improvements can’t exceed program LTV requirements • $10, 000 + of improvements required for eligibility • Appraisal requirements or borrower’s wish list allowable. • Luxury items and items not a permanent part of the property are not eligible Section 184 Training, Sponsored by HUD

REFINANCES Section 184 Training, Sponsored by HUD

TYPES OF REFINANCES • Streamline refinances (existing 184 loans) – With or without an appraisal – With or without credit qualifying • Cash out with an appraisal and credit qualifying • No cash out with an appraisal and credit qualifying Section 184 Training, Sponsored by HUD

LOAN CLOSING Section 184 Training, Sponsored by HUD

ENDORSEMENT PACKAGE • Received within 60 days after closing • Reviewed – 184 required documents – Commitment conditions – Closed as underwritten • Late endorsement (more than 60 days after closing) – Special processing requirements , fees may apply Section 184 Training, Sponsored by HUD

LOAN SERVICING • Protecting HUD’s interest • File retention (life of mortgage + 3 years) • Escrow accounts • Notification of servicing change Section 184 Training, Sponsored by HUD

FORECLOSURE OR ASSIGNMENT • Option to foreclose or assign • 100% payment • Claim submission Section 184 Training, Sponsored by HUD

SECONDARY MARKETS • Ginnie Mae • Fannie Mae • Freddie Mac • Local Markets Section 184 Training, Sponsored by HUD

THANK YOU! • More information on the 184 program: – http: //www. codetalk. fed. us/loan 184. html – HUD/Office of Native American Programs Toll Free: 1 -800 -561 -5913 Section 184 Training, Sponsored by HUD