Eric Schmieder NM Mortgage Finance Authority NM Tribal Homeownership Coalition

Eric SchmiederNM Mortgage Finance Authority

NM Tribal Homeownership Coalition

866 583-6041 Toll Free505 767-2233 Direct

505 228-8670 Celleschmieder@housingnm.org

Available on Tribal Trust, Individual Allotted Trust or Fee Simple land in Indian Operating Areas (All Fee Simple in NM)

Low down payment (2.25%) Flexible underwriting standards No credit scores (good credit history required) One qualifying ratio (41%) 1.5 % Loan Guarantee Fee (Financeable) No mortgage insurance No income restrictions Published Loan Limits

WHY SECTION 184?

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Reservations

Indian Removal Act of 1830Relocate tribal communities to Indian Territory

1860 Reservation PolicyMore Pressures on Indian TerritoryRelocations to small geographical areas

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Assimilation

1880-1934Interior Sec Carl Schurz (1880) “The policy is……to

dissolve….their tribal cohesion and merge them in the body politic”

Day and Boarding schoolsBIA oversight increasedDawes Act of 1887 Allotments to individuals

Convert to fee simple after 25 years

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Changes1934-1953Indian Reorganization

ActReversal to Strengthen

tribal institutionsRepealed Dawes Act

1953-1970Termination100 Tribes targeted

Relocation12 major cities with

relocation centers

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Self-Determination

1975-present

Indian Self Determination and Educational Assistance Act (1975)

Native American Housing and Self Determination Act (1996) NAHASDA

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HUD 1841992 Section 184 indian Housing Loan

Guarantee Program

Substandard HousingOvercrowdingHelp for Higher Income tribal membersNew MarketsHousing in Indian Areas

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LAND OWNERSHIP IN INDIAN COUNTRY

• Program requirements and processing procedures vary depending upon land status

• Types of land ownership:1. Tribal Trust with an approved lease2. Land Assignment3. Allotted Trust with BIA approval4. Fee Simple within an Indian Operating Area

(usually off reservation)

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Sovereign NM Pueblos

Almost all land is owned by the tribe in fee simple estate

But Federal Trust responsibility appliesTraditional Land AssignmentsHUD Homes

Leases must be approved by the BIALeasehold Mortgage must be approved by

the BIA

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1. TRIBAL TRUST LAND

• Land or interest in land held in trust by Bureau of Indian Affairs (BIA) for a Tribe or In NM Fee Simple but subject to BIA Trust Responsibilities

• Land itself may not be encumbered or alienated (leasehold)

• Generally no property taxes or land cost12

LENDING ON TRIBAL TRUST LAND

Leasehold interest must be established between borrower and tribe

Parties to Lease: BIA Tribe Borrower

Title Status Report from BIA Preliminary with lease Final with lease/mortgage

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Jemez 184 Home Loan

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30 Year old Home goes to DC

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184 ExpansionIn 2005, the Pueblo of Jemez petitioned the

Office of Native American Programs to expand the service area of the 184 loan to all of New Mexico

Now any enrolled member of a recognized tribe can use the 184 loan for purchase on fee simple land in New Mexico

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3. FEE SIMPLE LAND

• Estate in land that is absolute or unrestricted except for government rights

• Owner can dispose of land– Subsequent sale of home and/or foreclosure; land and home sold

together

• Within Tribe’s operating area for housing (see map slide)

• Title Policy is required

• A “regular old loan”

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184 PROGRAM OPTIONS

1. Purchase 2. Purchase and rehabilitation3. Single Close New construction:

– Manufactured on permanent foundation– Modular and stick built

4. Rehabilitation5. Refinancing (Including cash-out)

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ELIGIBLE BORROWERS

American Indian or Alaska Native individual or family:

• Owner occupant

A Tribal Housing Entity (TDHE/IHA)

• Rental, sale or assumption

A Tribe:

• Rental, sale, or assumption19

San Felipe Built 28 Homes with Section

184

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PROPERTY REQUIREMENTS are STANDARD FHA

• Single family (1-4 units)

• Permanent foundation

• Infrastructure

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184 PARTNERS• Real Estate Brokers

• Builders

• Lenders

• Tribes

• Tribal Housing Authorities (TDHEs)

• Bureau of Indian Affairs (BIA)

• HUD 184 Program Staff22

WHAT DOES THE TRIBE DO?

• Develops and implements procedures for:

– Foreclosure– Eviction

• Provides land• Infrastructure• Financial assistance• Completes Land Status Form• Conducts environmental reviews• http://www.silverbulletproductions.com/completed-

programs.html#Lincoln-Canes

FOR LAND LOCATED ON THE RESERVATION:

Priority of lien Leasing

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WHAT DOES THE LENDER DO?

• Lends the money!

• Explains homeownership and the 184 mortgage loan process

• Processes the loan, prepares the loan package

• Serves as liaison between borrower and HUD24

WHAT CANReal Estate Brokers DO?

Create a niche market for the underserved Native American population.

Serve as liaison between borrower, builder, lender, and the Tribe’s Housing Authority.

One of the biggest obstacles to homeownership is finding a trustworthy advisor who can guide a borrower through the home buying process. Real Estate Brokers who help buyers overcome such obstacles will stand to gain in the coming years as the Indian population and their buying power increase rapidly. 25

Whether they buy or build, the home buying process can be dramatically simplified with the help of a qualified Real Estate Broker. Real Estate Brokers:

•Know the local money market

•Understands the mortgage process and can assist

•Can make sure the borrower gets the best loan product

•Are familiar with local down payment assistance programs

•Are familiar with local builders, subdivisions, and the contract process

DO NATIVE AMERICANS NEED A Real Estate Broker?

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Contact list for Tribes and their Housing Entity:

www/hud.gov/offices/pih/ih/codetalk/onap/map/sw.xls

WHAT IS THE MARKET?

American Indian and Alaskan Native US Population

Source: U.S. Census Bureau 2001

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MARKET cont.

In the U.S., there are 245 places with 100,000 or more populations.

“Race Alone” refers to individuals who reported only one race.

“Race Alone or in Combination” refers to individuals who reported only one race together with those who reported that same race plus at least one other racial category.

20 Cities with Largest Urban Indian Population, Among CitiesWith Populations of 100,000 or More in 2000

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WHERE TO MARKET

Property must be in a designated Indian Operating Area

See our website for approved counties in remaining states 29

New MexicoThe HUD Office of Native American Programs 184 Loan is now available on all Fee

Simple land in New Mexico.

The following Reservation Lands are also approved: Pueblos: Cochiti, Isleta, Jemez, Laguna, Nambe, Pojoaque, San Felipe, Ohkay

Owingeh (San Juan), Sandia, Santo Domingo, Santa Clara, Tesuque, San Ildefonso, Zia and Zuni.

Tribal: Jicarilla Apache, Mescalero Apache, Navajo Nation

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HOW TO MARKET

•Add a Section 184 Loan Guarantee website link to your website

•HUD has brochures and handouts that can be reproduced

•Contact the tribe’s housing authority to offer your serviceshttp://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/homeownership/184

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NM Section 184 Production

New Mexico 695 $109,999,593   121 $20,201,807 174 $28,406,409 106 $17,448,461 111 $17,066,796

Fee Simple 455 $78,814,395   107 $18,478,529 128 $22,631,601 99 $16,529,594 63 $10,489,009

Allotted 2 $274,115   1 $76,915 1 $95,253

Tribal Trust 238 $30,911,083   13 $1,616,313 46 $5,774,808 7 $918,867 47 $6,482,534

7/14 FY2013 FY2012 FY2011

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Use these questions to help you decide: Are you a Section 184 approved lender? How long have you been originating Section 184? How many Section 184 loans have you originated? Do you have experience with any certain tribes? Have you worked with any homebuyer assistance programs? Are you familiar with the Tribe’s Housing Assistance programs? Do you work with appraisers experienced with Section 184 in my

area? Do you have the capacity to administer an escrow account for the

one-time construction closing?

CHOOSING A LENDER TO WORK

WITH

LENDER

BROKER

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BORROWER QUALIFICATIONS

AND

THE MORTGAGE LOAN PROCESS

LOAN PROCESS

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GET STARTED

• Real Estate Broker informs client of options for loans

• Real Estate Broker helps borrower contact a Section 184 participating lender

• Borrower provides lender with a copy of their Native American ID or enrollment card

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Pre Qualifying

• Most lenders will prequalify• Provide recent check stub(s) or other

income verification• Release for credit check• Monthly Gross Income • Monthly payments on Credit Cards,

Installment and Real Estate

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BE PREPARED

Standard checklist of items to start the process.

Tribal Affiliation (Enrollment) Card Employment history (2 years) Recent year-to-date pay stub Prior year W-2 forms Self-employed – Tax returns (2 years) Two months recent bank statements Monthly debt information

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Tribal Enrollment

• Forms of evidence of Tribal Enrollment:

• Photo Tribal ID card that includes name of tribe, enrollment number, tribal member name

• Letter notification on tribal letter head that includes enrollment number, tribal member name

• NO CDIB cards NOTE: Unusual forms of enrollment can be sent to HUD/ONAP for

review and approval

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CAPACITY. The ability to meet your payments.

CAPITAL. Savings and assets for collateral.

CHARACTER. Credit history.

3 C’s

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41% debt-to-income ratios (guide): Determines if borrower(s) has the ability to repay the

mortgage Compensating factors allowed when 41% guide is

exceeded.

CAPACITY

Liabilities: Recurring obligations

Contingent liabilities Projected obligations P.I.T.I (Principle, Interest, Taxes, Insurance)

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COMPENSATING FACTORS

Payment history

Savings history

Job prospects

Overtime

Nontaxable income adjustments.41

CHARACTER

Credit History: HUD is concerned about a borrower’s overall

payment pattern. Lenders look for:Borrowing and payment habitsPrevious and existing creditJudgments, collections and liens

Lenders must investigate all major indications of derogatory credit and give the borrower an opportunity to explain in writing.

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CAPITALCash Investment:

Difference between the mortgage loan and the cost to acquire the property Minimum investment: 1.25% to 2.25% based on maximum mortgage amount

Down payment sources : Savings Cash Gift 401K Investments

MFA

Secured funds Sale of personal property Sweat equity Land Home buyer assistance programs

Tribe / TDHE financial assistance : Gift from tribal funds (No restriction on use or amounts) Grant from NAHASDA funds

2nd mortgage Security agreement Value in infrastructure

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CLOSING COSTS

• Expenses incurred to borrow money– How can they be paid?

• Added to the purchase price• Financed (secured loan)• Prepaid• Paid by buyer or seller

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FINANCED COSTS

When calculating the acquisition cost, lenders may add allowable closing costs to the sales price or contractor’s price. The costs are those to be paid by the borrower and must be typical and reasonable, and may include:

•Loan origination fee, not to exceed 1%, or 2.5% if involves construction draws•Appraisal and inspection fees, including borrower home inspection fees•Actual cost of credit reports•Deposit verification fees•Cost of title examination and title insurance•Document preparation (if performed by a third party not controlled by the lender)•Property survey•Attorney’s fees (if the attorney is not an employee of the mortgagee)•Recording fees•Test and certification fees (such as water and environmental tests)•Settlement fees (if not an employee of the mortgagee and an independent company)

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LOAN AMOUNT• Mortgage Caps:

– No mortgage may exceed 97.75% of the appraised value, excluding closing costs (98.75% for if value is 50,000 or less)

– All mortgages are capped at 1.5% of the FHA limit for the area• Loan Amount is Lowest of:

– 184 Loan limits for county• http://portal.hud.gov/hudportal/HUD?src=/program_offices/

public_indian_housing/ih/homeownership/184

LTV ratio: 97.75% or 98.75% of appraised value

– Acquisition cost (sales price + closing costs):• 97.75% or 98.75%

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Seller contributions (or interested third party) are not subtracted from the sales price, but are limited to six percent of the sales price before a dollar-for-dollar reduction is required. Seller contributions include:

•Payment of closing costs normally paid by the buyer•Discount points•Interest rate buy downs •Prepaid and escrow items collected at closing•Payments of mortgage interest (but not principal)•Loan guarantee fee.

Excluded from the six percent limit on financing concessions are unplanned permanent buy down points resulting from a shift in interest rates during the period between the date of the sales contract and the date of loan closing. The sales agreement must provide for specific financing terms that could not be met, due to a change in market conditions.

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Membership of Recognized Tribe--ID Card

1.5 Point Financeable Guarantee Fee

2.25% Downpayment

41% Total Debt Ratio (43% with compensating factors)

MFA Eligible

Rate

Downpayment & Closing Cost Loan

No Income Limits

All Fee Simple Properties in NM

REVIEW

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