Exploring the
Challenges
and
Opportunities
for Mortgage Finance
in Indian Country
This report was prepared by Christina Davila and Keith Wiley of the Housing Assistance Council
(HAC). The work that provided the basis for this publication was supported by funding from the
Wells Fargo Housing Foundation. HAC is solely responsible for the accuracy of the statements and
interpretations contained in this publication and such interpretations do not necessarily reect the
views of the Wells Fargo Housing Foundation.
Exploring the Challenges and Opportunities for
Mortgage Finance in Indian Country
Acknowledgements
The Housing Assistance Council wishes to thank the following individuals and
organizations that provided invaluable expertise in this endeavor:
Marvin Ginn of Native Community Finance, Evelyn Immonen, Miriam Jorgensen
of the University of Arizona, Tanya Krueger and Je Bowman of Bay Bank, Patrice
Kunesh and Dick Todd of the Center for Indian Country Development at the Federal
Reserve Bank of Minneapolis, and Lynn Trujillo and Tedd Buelow of USDA Rural
Development.
April 2018
Housing Assistance Council • 1025 Vermont Avenue,
N.W., Suite 606 • Washington, DC 20005
(voice) 202-842-8600 (fax) 202-347-3441
http://www.ruralhome.org
4 5
i Executive Summary
6 Introduction
6 Native Americans and Their Lands
7 Historical Background
7 Marshall Trilogy
7 Federal Indian Policy
10 Barriers to Mortgage Lending on Federally
Recognized Reservations
11 Poverty and Geographic Isolation
12 Land Ownership
13 Bureaucracy
13 Mistrust
14 A Review of Recent Native American
Mortgage Lending Trends
14 Data
14 Approach
16 Analysis
16 Limited Native American Activity Overall
17 Lending on Reservation Lands
Lags Fee-Simple Land
19 High Mortgage Loan Denial Rates on
Reservation Lands
20 High Denial Rates, Regardless of Property Type
21 Manufactured Home Lending
Common on Reservations
21 Chattel Loans with High Interest Rates
22 Limited Lender Involvement and Little Industry Concentration
22 Unique Sources of Lending on Reservation Lands
23 Federal Resources for Native Mortgage Finance
25 HUD Section 184 Program
26 U.S. Department of Veterans Aairs (VA) Home Loan Programs
26 VA Home Loan Guarantee
27 Native American Direct Loan
28 U.S. Department of Agriculture Rural Housing Loan Programs
28 USDA Section 502 Direct Home Loan
28 USDA Section 502 Loan Guarantee
29 HUD Indian Housing Block Grant program
31 Ideas and Eorts to Address the Mortgage Challenges on Native American Lands
31 Underlying Considerations
31 Idea 1: Increase Awareness
32 Idea 2: Improve Capacity
33 Idea 3: Modify Rules or Expand Incentives
35 Idea 4: Improve Collection and Access to Data
35 Discussion for Future Action
Table of Contents
4 5
21 Manufactured Home Lending
Common on Reservations
21 Chattel Loans with High Interest Rates
22 Limited Lender Involvement and Little Industry Concentration
22 Unique Sources of Lending on Reservation Lands
23 Federal Resources for Native Mortgage Finance
25 HUD Section 184 Program
26 U.S. Department of Veterans Aairs (VA) Home Loan Programs
26 VA Home Loan Guarantee
27 Native American Direct Loan
28 U.S. Department of Agriculture Rural Housing Loan Programs
28 USDA Section 502 Direct Home Loan
28 USDA Section 502 Loan Guarantee
29 HUD Indian Housing Block Grant program
31 Ideas and Eorts to Address the Mortgage Challenges on Native American Lands
31 Underlying Considerations
31 Idea 1: Increase Awareness
32 Idea 2: Improve Capacity
33 Idea 3: Modify Rules or Expand Incentives
35 Idea 4: Improve Collection and Access to Data
35 Discussion for Future Action
i ii
1. “Reservation land” refers to land held in trust by the federal government for the 326 federally recognized tribes which have trust lands. The
tribes have sovereign control over these lands. This refers to on and o-reservation trust lands, but excludes other census-dened tribal
geographies like state recognized reservations or tribal designated statistical areas.
This report explores mortgage lending to American Indian and Alaska
Natives particularly activity on federally recognized reservation lands
(“reservations”).
1
The analysis touches on the historic and social factors
that have helped create the constrained mortgage lending environment
on reservation lands. In addition to barriers like geographic isolation,
economic distress, and mistrust, which are often found in rural areas,
these lands have a nonstandard land ownership situation and an extra
layer of federal oversight, as well. A review of mortgage lending data
for Native American borrowers conrms activity is constrained on
reservations. Such activity includes low origination rates, high denial rates,
and a high proportion of loans made for manufactured homes.
Federal programs have the potential to encourage mortgage lending on
reservations. Despite these federal programs accounting for the majority
of the loans made on reservations, they have not signicantly increased
mortgage lending activity. More specic improvements for widening
access to mortgage lending on reservations could be helpful. In addition
to better targeted policies and having more complete data available,
increasing the capacity and awareness of all involved parties could help
resolve the challenges of mortgage lending on reservations.
Executive Summary
i ii
Historical Background
The current state of mortgage lending on tribal lands did not arise in
a vacuum. Much of today’s constrained mortgage lending activity on
reservation lands is a result of the federal-tribal relationship throughout
history. The best approach to understanding the current state of
mortgage lending on reservation lands is to consider signicant Supreme
Court decisions and federal policy inuencing tribes and land.
• Marshall Trilogy: These three landmark cases, Johnson v. McIntosh
(1823), Cherokee Nation v. Georgia (1831), and Worcester v.
Georgia (1832), established the legal foundation for the federal
government holding this sovereign land in trust for the benet of
tribes and solidied the federal government’s role in regulating
aspects of tribal aairs, including mortgage lending.
• Federal Indian Policy: Federal policies of forced relocation to
isolated rural land held in trust, cultural assimilation, and the
undermining of tribal self-determination have led some tribes to
face poor economic conditions, land ownership issues, the eects of
intergenerational trauma, and a complicated web of bureaucracy.
Lending Challenges on
Reservation Lands
The following four factors, stemming directly from history and previous
policies, serve to constrain mortgage lending activity on reservation lands.
• Poverty and Geographic Isolation: The aggregated poverty rate for
reservation lands is 29.2 percent, considerably higher than the 15.5 percent
for the nation. Along with economic distress, comes little to no credit history
which severely limits the ability to obtain mortgage capital. Also, many Native
Americans have never bought a home before and are inexperienced with
the process. Besides individuals being poor and not being able to qualify
for mortgage loans, being relegated to remote areas makes building more
homes and accompanying infrastructure costlier, leading to an inadequate
housing stock and overcrowding. Over 70 percent of the counties with at
least some reservations lands are found outside of metropolitan areas
and 27 percent of these counties have fewer than 10,000 residents.
• Land Ownership: Reservation lands cannot be sold or used as
collateral for a mortgage loan. This means that lenders making a loan
on a reservation land home are at greater risk of losing money if it
does not perform, as they cannot seize the property. Instead, a loan
on a reservation land home comes with a leasehold interest to the
borrower. This does not t into the standard home loan product and
often requires government-backing to limit risk and facilitate lending.
iii iv
• Bureaucracy: In addition to tribal and lender oversight, home loans on
reservation lands are under federal oversight, specically by the Department
of Interior’s Bureau of Indian Aairs (BIA). The process can be prolonged
because multiple entities are involved, each adding their own requirements
and government agencies can be understaed.
• Mistrust: Federal policies that sought to assimilate and relocate Native
American communities have created mistrust among tribes of not only the
federal government, but also other outside entities. Mistrust can limit the
creation of agreements between tribes, lenders, and government agencies
that could have helped them overcome the nonstandard land ownership
and bureaucratic hurdles that exist on reservation lands to facilitate
mortgage lending.
Native American Mortgage Lending Activity
A review of Home Mortgage Disclosure Act (HMDA) data nds limited
mortgage lending activity
2
for Native American borrowers, which is largely
because of the dearth of activity on reservation lands.
3
A large proportion
of the reservation land lending involves manufactured homes and denial
rates are considerably elevated. Banks, savings, and thrifts originate more
reservation land loans than private mortgage companies and credit unions.
Small-asset Native American-owned banks play a relatively large role here. A
few gures are illustrative:
• Limited Lending Activity
» About 0.6 percent of HMDA loans in 2015, 43,926 loans out of 7.2
million, went to Native American borrowers who represent 1.6 percent
of the U.S. population.
» While 9.5 percent of Native Americans live on reservation lands, they
receive only a 2 percent share of Native American mortgage loan
activity.
» About 22.3 loans were originated per 1,000 U.S. residents, compared to
1.9 loans per 1,000 Native American reservation land residents.
• Low Origination and High Denial Rates
» Over 60 percent of all HMDA applications in 2015 were originated,
2. Mortgage lending activity involves home improvement, renance and rst lien home purchase applications.
3. For this research, reservation land lending reects activity occurring in census tracts with their center point(centroid) in reservation
lands. Census tract and reservation land boundaries do not match, so this means that census tracts with their centroid in reservation
lands often contain some non-reservation lands and vice versa for outside reservation land census tracts. The estimates are not
perfect counts of reservation land lending – unless citation for the source is provided in the text, but instead represent estimates
that reect the amount of types of activities occurring in these communities. These reservation land estimates generally conrm the
ndings from other data sources on the dearth of lending in these markets.
iii iv
49 percent of o-reservation land applications by Native
Americans were originated, and just 32 percent of on reservation
land applications by Native Americans were originated.
» Almost half of all applications by Native Americans in 2015 on
reservation lands – 46 percent, were denied, substantially higher
than the 29 percent for all other Native American applicants.
• Manufactured Homes
» Less than 5 percent of all HMDA applications involved a
manufactured home, compared to 7 percent for Native
American applicants o-reservation land and 39 percent
for Native American applicants on reservation land.
» Over half of all loans to Native Americans involving a
manufactured home are high-cost, meaning they have
interest rates and fees considerably higher than a standard
prime rate loan, making them costly to the borrower.
• Lender Involvement
» About one-third of all lenders originated a loan to a
Native American applicant – over 2,000 institutions, but
only about 165 made a loan on reservation lands.
» Banks, savings, and thrifts originated two-thirds of the loans
to Native Americans on reservation lands compared to slightly
less than half for all other loans to Native Americans.
» Small-asset Native American-owned, Bay Bank and Bank 2, were
among the 20 largest-volume lenders serving reservation lands.
Federal Programs
Several federal government programs were created to positively
impact mortgage lending to Native Americans and specically with
Native Americans living on reservation lands, including HUD Section
184 program, VA loan programs, USDA Section 502 loan programs,
and HUD Indian Housing Block Group program. In each case, these
programs have had limited success on reservation lands.
v vi
• HUD Section 184 Program: This program provides a 100 percent
loan guarantee to private lender loans to enrolled tribal members.
Established in 1992, the Section 184 program initially guaranteed
loans exclusively on reservation lands, but now it reaches select
o-reservation lands, including more than 20 entire states.
» Three-quarters of the lending occurs in six western states: Oklahoma
(45%), Alaska, Arizona, New Mexico, California, and Nevada.
» More than 90 percent of Section 184 loans occur o reservation lands.
Fewer than an average of 200 Section 184 guaranteed loans occurred
annually on reservation lands during the 2005 to 2016 period.
4
» Lender involvement declined from 280 in 2006 to 122 in 2017.
• VA Loan Programs: The standard VA loan guarantee, starting with
the G.I. Bill after World War II, is an important product for Native
Americans who live o reservation lands. The standard VA loan does
not reach reservation lands though. The VA’s Native American Veteran
Direct Loan (NAVDL) program seeks to address this need with direct
loans to Native American veterans on reservation lands for which
the VA has a memorandum of understanding agreement with the
tribe. Still, few NAVDL loans have occurred on reservation lands.
» The VA loan program guaranteed 12 percent of
all loans to Native American borrowers.
» The VA originated an annual average, over the 2013-2015
period, of 21 NAVDL loans on reservation lands.
5
» More than 90 percent of NAVDL loans are done
in Hawaii and American Samoa.
» Eorts at expanding NAVDL lending have been able to increase
the number of memorandums of understanding between the
VA and tribes, making the product available in more areas.
• USDA Section 502 Loan Programs: The USDA Section 502 direct and loan
guarantee programs, while not specically targeting Native Americans,
4. Listokin, David, Temkin, Kenneth, Pindus, Nancy, Stanek, David. Urban Institute. Mortgage Lending on Tribal Land: A Report from
the Assessment of American Indian, Alaska Native, and Native Hawaiian Housing Needs. U.S. Department of Housing and Urban
Development. January 2017. Accessed July 20, 2017. https://www.huduser.gov/portal/sites/default/les/pdf/NAHSG-Lending.pdf
5. Haines, Bill. US Department of Veterans Aairs: Veterans Benets Administration. 2016. Native American Direct Loan Program.
September 2017. https:///www.hud.gov/sites/documents/DAY2_BILLHAINES.PDF.
v vi
focus on rural communities, which would include many reservation
lands and over 1 million Native American residents. The USDA made
approximately 7,000 direct and 116,000 loan guarantees in 2016.
6
» The USDA guaranteed 752 loans to Native American borrowers
annually during the 2013 to 2015 period. This constitutes less
than one percent of all USDA 502 guaranteed activity.
» An average of 12 USDA Section 502 direct loans were
made to Native American borrowers on reservation
lands each year between 2013 and 2015.
• HUD Indian Housing Block Grant Program (IHBG): The IHBG was created
by the Native American Housing Assistance and Self-Determination
Act of 1996 (NAHASDA). This block grant is the largest single source
of housing funding dedicated to tribes for use on reservation
land and is awarded to tribes using a needs-based formula.
» IHBG increased the supply of quality homes by using funds to
to build, acquire, and substantially rehabilitate homes but it is
unclear whether there were any associated mortgages.
There have been many eorts over the years to expand mortgage
lending access to reservation lands. Programs like HUD’s 184 loan
guarantee and the VA’s NAVDL direct loan, along with the USDA’s one-
stop mortgage center initiative have put forth policies to address the
unique characteristics that impact many tribal reservation lands. These
ideas and approaches are likely positive, but the data suggest they have
yet to greatly improve mortgage lending on reservation lands. A more
eective approach should include improvements in education and
capacity, better targeted nancial policies, and increased access to data.
In total, these eorts can improve the operation of mortgage markets
and widen access. Policies to address nance and housing markets,
however, should work in concert with other policies designed to address
underlying economic and social problems to maximize impact.
6. Housing Assistance Council. 2017. USDA Rural Development Housing Funding Activity: FY 2016 Year-End Report.
Accessed 10/5/17 from the following url: http://www.ruralhome.org/storage/documents/rd_obligations/fy2016/usda-fy16-
yo-report.pdf
vii viii
Idea 1:
• Increase Awareness: This means making lenders and Native Americans
more aware of the government lending programs. It is helpful to instill the
idea that homeownership may be possible and teach what one needs to
do to qualify and successfully fulll a mortgage loan commitment. If the
proper process and product are involved, loans can work on tribal lands
and lenders need not be risk averse. This would include educating involved
parties about the process that is involved on reservation lands and the
dierent perspectives and customs that shape this process.
Idea 2:
• Improve Capacity: Expand the capacity of all parties involved so they
can better navigate the mortgage lending markets on reservations. For
example, this means expanding tribes’ self-governance capacity to be more
ecient at mortgage lending eorts; increasing lender capacity, particularly
small institutions, to be eective at using existing government programs
and navigating the process on reservation lands; and expanding federal
regulators capacity so they can perform their oversight duties in a timely
manner.
Idea 3:
• Modify Rules or Expand Incentives: There is likely room for better targeted
policies that could better incentivize mortgage lending. The following are two
potential policies.
» Duty to Serve: The recent “Duty to Serve” requirements mean GSEs
must plan to purchase loans originated in reservation lands, among
other underserved areas, which could be a powerful incentive for
lenders to engage in more lending. The GSEs are developing plans
on how they will fulll these obligations. To do this, there will need to
be sound, high-quality mortgage loans to purchase, which requires
addressing the current obstacles to reservation land lending. The Duty
to Serve requirements then creates an opportunity for tribes, lenders,
local non-prots, and CDFIs to come together and nd ways to improve
mortgage lending on reservation lands.
» Community Reinvestment Act (CRA): The CRA charges nancial
regulators with evaluating depository institutions on how well they
meet the credit needs of their service area populations. In this process,
lenders show they are reaching all parts of their service area by
investing in areas most often overlooked by lending. Lenders essentially
vii viii
receive credit for those eorts, given they occur in their service area.
Altering the eligibility requirement so all activity in underserved or
distressed reservation lands would qualify, regardless of service area,
could help. The regulation essentially makes projects and activity slightly
more valued in eligible areas since lenders get credit. Additionally,
expanding this and other related CRA denitions could possibly mean
more lender activity on reservation lands.
Idea 4:
• Improve Collection and Access to Data: Almost all publicly available
mortgage lending data lacks information on whether an activity occurred
on reservation lands, or if it involved certain government programs. This
makes it dicult to get an accurate picture of what is and is not occurring on
reservation lands. Both improved data and closer scrutiny of that data will
help with better understanding reservation land mortgage lending markets.
Native Americans have made great strides in strengthening their right
to self-determination and in reestablishing traditional laws and culture,
but major challenges remain. Broken treaties, forced relocation and
assimilation, and marginalization have resulted in poverty and isolation,
land ownership issues, and bureaucracy that all work together to
constrain mortgage lending. The review of HMDA data conrms that
mortgage lending activity on reservation lands is a rarity. Government
programs have stepped in to serve this population, but the current
eorts have not been able to overcome the impediments.
Solutions are out there, specically related to capacity, education,
incentives, and data access. Increasing the capacity of the involved parties
would help them to navigate the complex process of mortgage lending
on reservation lands. Tribal members, banks, and local governments
need to be better informed of available products and how to access
them. Regulatory changes could incentivize bank and lenders to invest
more in Indian Country. Lastly, having more and better available data
available would give further insight into the issues. The ideas proposed
here could ensure more equitable access to mortgage nance. For
Native people, the trust relationship has meant the guarantee of U.S.
federal protection of people and lands would be implemented. While
the federal government has had a history of not fullling its promises
to Native people, the continuing responsibility to do so still stands.
6 7
i. AIAN, American Indian, and Native American are used interchangeably in this report and are dened here as all those identifying their race
solely as AIAN and those identifying as AIAN along with another race. The Census refers to this category as “AIAN alone or in combination.”
Introduction
Well-developed and functioning capital and credit
markets help to stimulate economic development and
facilitate vibrant economies. One form of such credit,
mortgage lending, gives individuals the opportunity to
become homeowners. However, access is not available
to all. The barriers that constrain credit and capital
markets also limit mortgage lending. On federal Indian
reservations, these barriers include borrowers’ poor
credit histories, lenders’ failure to understand tribal
government systems, and an inability to use trust land
as collateral,
1
all of which have resulted in a paucity of
mortgage lending. Overcoming some of these obstacles
would make great strides toward nancial prosperity,
and therefore, increased access to mortgage lending.
Stories of success, however, are happening on
reservations across the nation, and can be used as
models for replication.
This report provides an overview of mortgage lending
to Census-dened American Indian Alaska Natives
(“Native Americans”). It intends to inform the public
and policymakers about the challenges associated with
mortgage lending to Native communities, particularly
those located on federal reservation lands. It explores
the underlying historical and social complexities,
including social, housing, and economic deprivation and
general disinvestment that inuence the economic and
housing situation of Native Americans today. Couching
the discussion in these terms provides a deeper
and more complete understanding of their current
mortgage nance circumstances. The paper explores
HMDA mortgage loan data, highlighting the absolute
dearth of activity on reservation lands. A review of
federal resources available to support such lending
explores how policymakers have attempted to increase
lending on reservation lands. The paper concludes by
pointing to some areas where changes might improve
the mortgage lending process and ultimately expand
Native Americans’ opportunities for mortgage nance
on reservation lands.
Native Americans
and Their Lands
Before a discussion of mortgage lending begins, it is
helpful to better understand the population and history
of Native Americans. As of 2015, a total of 5.3 million
people identied their race as Native American, 2.5
million of whom considered themselves solely Native
American. Around 480,000 Native Americans resided
on reservation lands, many of whom are enrolled
tribal members. Tribal citizenship is determined by a
tribal government, which may require proof of lineage
from a tribal member or a qualifying blood quantum, a
measurement introduced by the U.S. government.
2
Not
all people who self-identify as American Indian Alaska
Native are members of tribes. Regardless of tribal
membership, all Native Americans are U.S. citizens.
There are 567 federally recognized tribes in the U.S.,
almost half of which (229) are located in Alaska.
3
Most
federally recognized tribes in the lower 48 states have
reservation land – 325 tribes across 34 states and
there is one tribe in Alaska.
4
Some tribes have multiple
reservations, some tribes share reservations, and some
tribes have no reservation land like the Cherokee in
Oklahoma. Tribes have sovereign control over these
lands, meaning they have the authority to self-govern.
Due to checkerboarding, an outcome of 19th century
policies, federal reservation lands are peppered with
fee simple land. As a result, this analysis of loan data
includes some activity on non-trust lands as well.
6 7
Historical Background
Marshall Trilogy
The current mortgage lending challenges on federally
recognized reservation land derive, in large part, from
the history of Native American land rights and the
evolving federal-tribal relationship. Each tribe has its
own unique political, economic, and social institutions,
but they have in common their sovereignty protected
by treaty, and a political relationship with the U.S.
federal government. As domestic sovereign nations,
tribes have the inherent authority to self-govern and
control their land and resources, which includes
regulating housing. While the federal government’s
recognition of Native Americans’ right to self-
determination has vacillated throughout history, the
unique legal foundation and political standing of tribes
was largely set by three landmark U.S. Supreme Court
cases, collectively known as the “Marshall trilogy.” Much
of the content and structure of this history is derived
from a previous document published by the Housing
Assistance Council in 2006.
5
Johnson v. McIntosh (1823) invoked the Doctrine of
Discovery to decide that the U.S. federal government
acquired paramount title to lands inhabited by
American Indians, thus invalidating/nullifying their
aboriginal possession of the land and recognizing
a mere right of occupancy of their lands.
6
In Cherokee Nation v. Georgia (1831), the
Supreme Court determined that the relationship
of the tribes to the United States resembles
that of a ward to its guardian, and not that of a
foreign nation. With tribes viewed as domestic
dependent nations, the U.S. asserted trusteeship
over reservation lands, holding a trust responsibility
to manage and protect tribes as beneciaries.
7
Worcester v. Georgia (1832) reestablished
the limited internal sovereignty of tribes. The
Court ruled that tribes were distinct political
communities with the right to self-government
and only the federal government, not the states,
had authority over Native American tribes.
8
The way in which these decisions have been
interpreted establishes the legal foundation of the trust
relationship, thus solidifying the federal government’s
role in regulating certain aspects of property related
to Indian tribes. In addition to establishing the unique
political status of tribes, the decisions dened the
federal trust status of reservations.
Federal Indian Policy
Hundreds of years of federal policy careening between
extinguishing or rearming tribal sovereignty has
signicantly impacted Native American communities
and has played a role in producing the modern-
day diculties with accessing mortgage lending
on reservation lands. To help contextualize this
complicated, and often asymmetric relationship, we
briey present ve epochs highlighting the intersection
of Native Americans and their relationship and
experience with the U.S. federal government.
ii
Removal and Establishment of the Reservation System
(1830-1880) During the 18th and 19th centuries,
treaties were a commonly used method to reconcile
contrasting values and objectives between the U.S.
and tribal governments. These legally binding contracts
acknowledged each other’s sovereign status and
established these nations’ political and property
relations. While the federal government has not always
abided by treaty terms, treaties still retain the force of
law, dening mutual obligation between the U.S. and
Native nations.
9
Treaties were benecial to both parties
early on, as they guaranteed allies for the colonists
who were in a very weak position and they guaranteed
peace and security for Native nations. However, as land
became more sought after, later treaties morphed into
lopsided agreements, mostly benetting colonists who
wrote treaties in their own language with the force
ii. For a more detailed presentation of historical events facing Native Americans, see Housing Assistance Council, Lending on Native
American Lands (Washington, DC: Housing Assistance Council, 2006) accessed September 28, 2017, http://www.ruralhome.org/
storage/documents/Nativeamerguideforusda.pdf.
8 9
of their governments, courts, and laws underpinning
them. This scenario gave colonists the upper hand
because they gained the power to set the rules, using
bribery, threats, trickery, and coercion to pressure
tribes to sign land cessation treaties.
10
In 1830, President Jackson authorized the Indian
Removal Act, accelerating the displacement of tribal
communities with fertile land in the southeastern
U.S. to the primarily semi-arid plains west of the
Mississippi River, beyond U.S. state boundaries.
11
This unprecedented legislation was ercely debated.
Those opposed to removal argued for Native nations’
sovereign rights. Several Native nations fought
against removal by sending delegations, petitioning
government agencies, and publishing accounts in
public forums. Proponents of removal ultimately
succeeded, asserting that Native Americans hindered
the economic progress of cotton production and that
removal was humanitarian.
12
The westward pushing settler population soon
left no buer between “American civilization” and
Indian Territory. In an eort to nally solve the
“Indian problem,” Congress passed the Indian
Appropriations Act in 1851, which created the Indian
reservation system. Numerous tribes were relegated
to these designated parcels of land on a portion
of their former territory through the government
sanctioned consolidation. Political leaders at this time
expressed their desire for Indians to be concentrated,
domesticated, and incorporated. The reservation
system was one way to full that goal.
13
Forced removal
and the establishment of reservations led to increased
bureaucracy and the federal government’s further
entanglement in tribal members’ aairs.
Assimilation and Allotment of Reservation Land
(1880-1934) Once tribes were conned to Indian
Territory, Native Americans were forbidden to leave,
which limited their economic viability. Earning a living on
the reservation was made almost impossible, so tribal
members became dependent on the government.
14
Drawing from the assumption laid out in Cherokee
Nation v. Georgia that tribes are dependent, domestic
nations, the U.S. exerted its power to pass the General
Allotment (Dawes) Act of 1887, where tribal land was
divided into plots of around 40 to 160 acres
15
and
designated for individual tribal members as private
property in order to foster self-suciency and end the
dependency of the tribes on the federal government.
The federal government encouraged Native Americans
to use their land for farming but did not consider the
weather and soil conditions of the land that made
farming almost impossible. Allotment was unsuccessful
for other reasons as well:
The allotment policy did not institute private
property among the Indians; instead it overturned a
functioning property rights system that was already
in place. . . . Allotment failed because it privatized
the land among individuals without understanding
the existing family and tribal structure or the
property rights structure that accompanied it.
16
This system of allotment perpetuated the federal
government’s paternalistic view of tribes. Theoretically,
the allotted land would be held in trust for 25 years and
at the end of that time, it would revert to the individual
as fee simple land. However, in certain regions, when
the BIA deemed an Indian as not “competent,”
17
which
occurred often, the land could be ceded to the federal
government and sold to non-Indians. In one case, to
resist allotment of his reservation, Chief Lone Wolf of
the Kiowa tribe sued the U.S. government for violating
the Medicine Lodge Creek Treaty of 1867. However, the
Supreme Court ruled that Congress had the authority
8 9
to abrogate Indian treaties whenever it wished,
18
so allotment continued. As a result of the allotment
process and of opening reservations to non-Indian
settlement, tribes lost two-thirds of their landholdings
without compensation.
19
The federal government
divested Native Americans of almost 90 million acres,
decreasing Indian landholding from 136 million acres
in 1887 to 48 million acres in 1934 when the act was
repealed.
20
Land dispossession through the system
of allotment stripped Native Americans of property
wealth, crippling the economic status of generations to
come.
Indian New Deal (1934-1953) The tides began to
change with the passing of the Indian Reorganization
Act (IRA) of 1934, which encouraged tribes to organize
their own governments and create tribal courts. It
repealed the Dawes Act and halted the transfer of trust
land to fee simple land. While the policy of allotment
ended, the land ownership patterns created by the
Dawes Act remained, resulting in fragmented tribal
reservation lands being intermixed with non-tribal
landholdings and jurisdictions. Fractional property
ownership, whereby a piece of land is passed down to
multiple heirs, also adds to dierences between “trust”
and fee simple land.
Termination and Displacement (1953-1970) The U.S.,
recovering from World War II, slashed the Bureau
of Indian Aairs’ budget. Legislation was passed
to remove the federal government’s obligations to
provide education, health, or other services to tribal
communities. While the political relationship between
tribal governments and the federal government would
be terminated, Native Americans would gain U.S.
citizenship. More than 100 tribes were targeted to lose
federal recognition during this period. Their reservation
lands were broken up and sold, in part, because many
of these tribes had valuable natural resources that
could be taxed, privatized and developed.
21
Termination
was a major setback to Native Americans as they lost
their rights of protection and provisions from the
federal government, leaving them without nancial
support.
While many tribal members’ reservation lands were
being dismantled, the BIA’s Urban Indian Relocation
Program was setting up centers in 12 metropolitan
areas, resulting in enticing and coercing 160,000 Native
Americans moving o reservations.
22
In 1940, only
about 8 percent of American Indians and Alaska Natives
lived in metropolitan areas, but that rate grew to 45
percent by 1970.
23
Currently, the rate is close to seventy
percent. While the BIA later provided job assistance
and vocational training, early on it oered little nancial
support or orientation on how to handle moving from
reservations to cities, which diered greatly in their
ways of living. Consequently, many Native Americans
who had relocated could not nd jobs and those that
did, found low-paying, entry-level jobs that could oer
only limited upward mobility. In addition to being
placed in unsanitary housing units, relocated Native
Americans also experienced racial and social prejudice,
harassment, and violence.
24
And being in an unfamiliar
landscape, far from their families and support systems,
limited the social capital they needed to cope.
Another issue impacting tribal sovereignty was the
passage of Public Law 83-280, which transferred
legal authority from the federal government to state
governments,
25
giving Alaska, California, Minnesota,
Nebraska, Oregon, and Wisconsin the power to
exercise criminal and civil jurisdictional control over
reservations. This change in authority was enacted
without the consent of or consultation with the Native
American tribes aected.
26
Federal funding and
10 11
technical support for tribal self-government and tribal
courts were discontinued, limiting the ability of tribes
to self-govern, leaving these states without the ability to
operate court systems
27
and adding confusion to which
level of government had jurisdiction on reservation
lands.
Self-Determination (1970-present) After centuries of
subjugation to federal control, a new era emerged. A
renewed sense of Native American pride and resistance
took hold during the civil rights movements of the
1960s. The Red Power movement, a Native American
social movement with a confrontational and civic
disobedience approach, demanded respect for treaty
rights and restoration of tribal self-determination.
The protests also focused on addressing the
marginalization and extreme poverty that aected
many federal reservations.
Years of occupations and protests slowly made
important gains in furthering tribal self-determination.
Activists wanted to reinstate the idea of coexistence
as separate, independent peoples. In the 1970s,
Indian organizations adopted a comprehensive legal
and political strategy, persuading Congress to pass
legislation in favor of Native Americans, strengthening
tribal autonomy and arming tribal rights. After rallying
to defend their status as separate nations,
28
most of the
terminated tribes regained federal recognition.
29
The
Indian Self-Determination and Education Assistance Act
of 1975 (Public Law 93-638) was enacted, authorizing
“Indian Tribes and Tribal Organizations to contract for
the administration and operation of certain Federal
programs which provide services to Indian Tribes and
their members.”
30
This law rearmed congressional
support of tribal sovereignty and self-determination.
In addition, in 1988 the Self-Governance Demonstration
Project began to allow tribes to design and implement
their own programs, free from government regulation.
In 1996, the Native American Housing and Self-
Determination Act (NAHASDA) was enacted to
recognize the rights of tribal self-governance and
provide federal housing assistance to tribes. Around
this same time, Elouise P. Cobell and other Native
American representatives led a class action lawsuit
against the Department of Interior and the Department
of the Treasury, claiming the federal government
violated its trust duties to individual Indian trust
beneciaries and failed to be a good guardian. While
the plaintis did not win, the Cobell v. Salazar case
was settled out of court in 2009, resulting in $1.4
billion to be paid to the plaintis and $1.9 billion to be
used to repurchase fractionated land and return it to
reservations and tribal ownership.
31
Native Americans
have been gaining more authority and control over
their lives in recent years, but the ght for increased
self-determination continues.
Barriers to Mortgage
Lending on Federally
Recognized Reservations
This history of subjugation, expropriation, assimilation,
and the undermining of tribal self-determination has
had far-reaching consequences. It has undeniably
contributed to systemic issues that have disadvantaged
Native Americans and impeded mortgage lending on
reservation lands. These include poverty and isolation,
land tenure complications, bureaucratic oversight, and
mistrust. These issues are interrelated and reinforcing.
While it is a complex challenge, tackling any one of
these obstacles could ameliorate the other dimensions
of restricted mortgage lending on reservation lands.
10 11
Poverty and Geographic
Isolation
Perhaps the greatest structural problem hampering
the homeownership rate is that Native Americans are
one of the most impoverished Census-dened racial
group in the country, in large part, because a signicant
proportion live on reservation lands. In addition, a
historic lack of investment in economic development
eorts and abrogation of federal government duties
and responsibilities contributed to high rates of
unemployment and a cycle of generational poverty.
32
Persistent poverty is measured when an area has had
poverty rates of at least 20 percent for three decades.
While only 10 percent of the country’s counties are
in persistent poverty, over 30 percent of reservation
land counties are aected. The highest rate of poverty
in the U.S., at 53 percent, is Oglala Lakota County in
South Dakota, which is entirely within the Pine Ridge
Indian Reservation.
33
The eects of poverty help explain
why lenders expressed that the greatest hurdle to
lending on tribal land is underwriting challenges based
on borrower circumstances, like low incomes and
blemished or nonexistent credit history.
34
One contributing factor to the stied tribal economy
is that tribes have not received all the income derived
from their gas, oil, and other land resources due
to federal mismanagement of funds. In 1991, the
Secretary of the Interior’s Annual Statement and
Report to Congress stated, “the BIA’s management
of tribal and Individual Indian Trust Funds lacks
eective management/internal controls, reliable
systems, and management information. Tribal and
individual accounts lack credibility and have never
been reconciled in the entire history of the trust
fund.”
35
While there have been eorts to address this
mismanagement of appropriated resources (Cobell
v. Salazar), it is unclear to what degree the processes
and systems have been corrected to prevent problems
from happening in the future. Even in recent years,
Congress has not adequately funded entities that serve
Native Americans. Certain BIA regional oces have long
had inadequate stang capacity and the IT system lags
industry standards.
36
The federal oversight and lack of
funding perpetuate the ongoing economic diculties
tribal members face.
A Closer Look:
Location Matters
While many tribes are in remote, rural areas, some
tribes like the Agua Caliente Band of Cauhilla
Indians own valuable land close to metropolitan
areas. Owning reservation lands in relatively
auent Palm Springs, CA allows the tribe to benet
economically from a thriving housing market. The
demand is high, as the allotted land can be leased
in 99-year increments to non-tribal members. As a
result, the 500 Agua Caliente tribal members lease
out land for 7,700 homes, the most of any tribe.
Rosalie Murphy, “Half of Palm Springs Sits on Rented Land.
What Happens if the Leases End?” The Desert Sun, September
22, 2016, accessed September 25, 2017, http://www.
desertsun.com/story/money/real-estate/2016/09/22/palm-
springs-agua-caliente-land-lease/87944598/.
Another reason that mortgage lending is restricted on
reservation lands is there is an inadequate housing
stock. The most recent HUD estimates show a need for
68,000 new units- 33,000 to eliminate overcrowding
and 35,000 to replace deteriorated stock.
37
This is
largely due to being in rural and remote areas with
much of this land historically being perceived as having
little or no value.
38
Over 70 percent of counties with
reservation land are found in non-metropolitan areas
and 27 percent of these counties have populations
under 10,000. For example, the Standing Rock
Reservation in North and South Dakota is four hours
from Sioux Falls, SD and seven hours from Minneapolis,
MN and contains land in four of these low-population
counties totaling just 15,103 people.
12 13
Living in remote areas with small populations and few
connections to outside markets restricts the scale
and type of economic activity possible. Prot margins
are slim, so private developers have little incentive.
It can be very expensive to build new homes and
accompanying infrastructure on reservation lands due
to shortages of skilled labor, contractors, planners,
and building supplies. This means onsite stick-built
housing may be too costly, making lower-cost options
like manufactured homes more appealing. While these
homes can be nanced outside the regular mortgage
market, manufactured homes often come with higher
interest rates.
Remoteness also makes marketing eorts that
share available services and materials with potential
customers more dicult, as phone and internet access
may be undependable. Rural communities tend to be
served by relatively few commercial banks and nancial
service providers. The banks may only oer high-fee
banking accounts that are too costly for an individual
and can cause their customers’ credit scores to fall. The
banks may also charge high interest rates for loans.
In Native communities, the familiarity with nancial
products related to mortgage lending is limited, as they
“do not routinely gain experience in managing nances
and may not be prot-driven or focused on individual
accumulation of income and wealth.”
39
The mortgage
process is confusing and overwhelming for any rst-
time homebuyer, but it can be even more daunting
for Native Americans, who have been historically shut
out of the homebuying sphere. Often an applicant is
the rst in their family to go through the homebuying
process and does not have the benet of parental
advice.
40
Relatedly, Native Americans may not see the
value in owning a home or taking on the debt and
responsibility of doing so.
Land Ownership
A dearth of available quality homes to purchase in
the rst place makes many Native Americans on
reservations resort to living in overcrowded and
substandard housing. But the lack of aordable
housing for Native Americans has been exacerbated
by the land tenure status of trust land. The collective
tribe, instead of an individual, has ownership and
authority of reservation land but it is held in trust by
the federal government. The federal government holds
the benecial title to about 55 million acres in trust
41
for the use of Native Americans. This land cannot be
encumbered or alienated without federal approval by
the BIA. Because the title to the land is held in trust, the
land cannot be used to securitize a home loan. Instead,
a tribe can issue a leasehold interest to the borrower
to be used as collateral.
42
In general terms, banks are
at a greater risk if a loan does not perform because, in
some circumstances, the lender cannot seize the land
from a tribe to recoup monies. Also, the restriction of
resale of a foreclosed property to only the tribe, tribally
designated housing entity, or other tribal member
severely limits the lender’s options and eectively
lowers the collateral’s value.
The land tenure status on trust lands makes keeping
track of property titles onerous as well. The title search
process can be prolonged by land claim disputes for
many reasons, including missing title data, defective or
illegal transfers, and fractional land ownership. Because
tribal members historically have not had wills, probate
courts divide individual trust land among the heirs,
resulting in multiple people holding undivided interests
in a trust parcel. Decisions made about the parcel
must get approval from a majority of the heirs, which
can involve hundreds of individuals, greatly slowing
down the process.
43
The nonstandard land ownership
12 13
situation on reservation lands means that mortgage
products and the processes around them often do
not conform to standard loan products and practices,
possibly making lending on these lands less attractive
to lenders.
Bureaucracy
Obtaining a mortgage on trust land is made more
complicated by additional federal oversight and delayed
processes. In addition to the lender, the tribal court and
the BIA administer and approve foreclosure, eviction,
and priority of lien procedures. The BIA manages the
lease approval process and keeps track of property
titles using its Trust Asset and Accounting Management
System (TAAMS). Mortgages on trust land require the
BIA to produce a certied title status report (TSR),
which is a legal description of recorded liens and
encumbrances and veries that the loan applicant has
acquired a leasehold interest on the tribal land and
has total ownership.
44
However, it is more complicated
to obtain a title on trust land because the TAAMS
system used is also intertwined with other systems that
manage probates and monetary payouts and includes
family trees and maps of the property.
In addition, there are added requirements to get
a mortgage loan on reservation land, including
environmental and archeological clearances, which
add time to the process. Lease lengths that are shorter
than the term of a mortgage loan also add transaction
costs.
45
The approval process can also be delayed by
the BIA’s signicant workload and inadequate funding.
46
In some regions, it has taken the BIA over two years
to approve the lease and issue a title status report.
47
The multiple layers of bureaucracy required to wade
through serve to prolong the process and ultimately
restrict lending. While the BIA remains the legal steward
of most reservation lands, Native Americans who want
a mortgage must face the extra bureaucracy that
comes with living on reservation lands.
Mistrust
Native Americans have a well-documented history
exploitation and mistreatment, and some tribes are
hesitant to work with the federal government. At
the same time, some lenders do not lend on trust
land because they are unwilling to alter practices to
accommodate tribal law. These circumstances make it
dicult to reach agreements in the mortgage lending
process as working together may be viewed as a risky
proposition by both sides.
iii
Financial institutions and investors perceive higher risk
levels for lending to tribes that have not established
or clearly dened the legal infrastructure to enforce
contracts and agreements. In a HUD survey of tribes
and tribally designated housing entities, one of the
three major barriers to attracting lenders is uncertainty
about recovery of mortgaged property in the event
of foreclosure.
48
Lenders are also deterred if a tribal
court is not fully independent from other branches
of the tribal government, since that could result in
political interference in business and legal matters.
A lack of knowledge about tribal procedures
49
makes
lenders wary about lending on trust land as well. To
resolve these concerns, tribes must have the resources
to be able to adopt legal infrastructures, incorporate
separation of powers in their governance structures,
and educate lenders on their laws and regulations.
On the other hand, bank requirements could also be
more exible and allow exceptions for borrowers living
on reservations, given their nancial circumstances.
Lenders may project certain expectations that do
not work with tribal members’ way of thinking and
operating. These subtle dierences make it dicult
iii. Tribal members’ mistrust of government promises is still warranted today. Senators from Oregon and Washington state and an
Oregon congressman say the current administration is not fullling the federal government’s obligation to build new homes for
Indians whose homes were ooded by the building of dams along the Columbia River in the 1930s. “Columbia River Tribes Hit by White
House Decision on Housing: Congressional Delegation Seek Reconsideration,” KTVZ TV, October 31, 2017, http://www.ktvz.com/news/
columbia-river-tribes-hit-by-white-house-decision-on-housing/649185086.
14 15
to cooperate and can cause misunderstandings and
further mistrust. To build common ground, banks can
be trained in culturally sensitive ways to communicate
with tribal members and engage with Native Americans
on their terms. Building a trusting relationship takes
time but can benet both sides.
Native American
Mortgage Lending
Trends
The data bear out the eects of these impediments to
Native American mortgage lending. Activity on federal
reservation land, where such barriers are greatest,
is particularly limited. The following review explores
recent mortgage lending trends describing the current
situation and provides a foundation for informed
decision-making about increasing mortgage lending
access for Native Americans.
Data
This analysis utilizes Home Mortgage Disclosure Act
(HMDA) loan data covering mortgage lending activity
from 2006 to 2015, with a focus on the latest three-
year period. Lending to Native American populations
is not fully captured in HMDA data because HDMA
tends to exclude information from extremely small-
asset lenders and lenders operating entirely outside
of metropolitan areas.
50
While this exclusion can
have a large impact on Native American lending data
because the volume of lending is already very small,
HMDA data represent the most comprehensive data
source on mortgage lending activity and is widely used
in mortgage lending studies.
51
This study incorporates
HMDA indicators on the applicant and lender, census
tract, and race/ethnicity of the potential borrowers to
describe American Indian and Alaska Native mortgage
lending activity.
Approach
This study seeks to understand the consequences of
current policies related to mortgage nance by rst
estimating the volume of Native American lending
activity occurring on and o reservation lands, and
then comparing it on such measures as volume,
origination and denial rates, property type, and lender
involvement. The analysis is descriptive in nature and
seeks to identify unique patterns and trends of lending
on reservation lands.
An important component of this study involves
estimating the amount of lending activity that occurs
on reservation lands specically. However, HMDA
data are reported at the census tract level and federal
reservation and census tract boundaries do not match
perfectly. To help remedy this mismatch, the analysis
categorizes census tracts into three groups based
on the proximity of their center points to reservation
lands. The census tract classications
iv
used in this
analysis are “on reservation lands,” “within 25 miles of
reservation lands,” and “all others” (lands beyond 25
miles) (see Map 1).
v
Federally recognized reservation
or trust lands are the central geographic classication.
A secondary classication was chosen because
many tribal members with connections to the tribe
stay close to the reservation but just o because of
diculties with getting housing on reservation land. The
distance of 25 miles was chosen because it is within a
reasonable driving distance, as the average American
drives approximately 29 miles per day, only slightly
farther than the 25 miles chosen for this analysis.
52
Very
few census tracts contain reservation lands. Only 273
of the more than 73,000 census tracts in the U.S. are
iv. See the appendix for more details on how this study identied and classied census tracts according to proximity to federal reservations.
v. The analysis used ArcGIS to classify all census tracts based on their center points (centroid) proximity to federal reservation and o-
reservation lands. Again, see the appendix for more details.
14 15
classied as being on federal reservation lands, while
almost 13,000 census tracts are within 25 miles of
reservation lands.
The on-reservation lands classication used in this
analysis is only an approximation of tribal sovereign
lands. Census tract and reservation boundaries do
not match, and some census tracts contain both
reservation and non-reservation lands. Previous
research has noted this limitation in using HMDA
data to explore reservation land lending.
53
Another
complicating issue is that reservation trust lands are
interspersed with fee simple land, commonly referred
to as checkerboarding. This means that even when the
census tracts and tribal tracts match up, fee simple land
might also be included in the area. As a result, these
categories are approximations, not perfect matches,
and the amount of lending activity occurring in them
represents an estimate, not an absolute count. This
analysis looks at only federally recognized reservation
lands in the 48 contiguous states and Alaska. While
there are 229 Alaska Native communities, only the
Annette Island Reserve in Alaska is considered a
federally recognized reservation. Other American Indian
and Alaska Native-designated lands were excluded.
vi
vi. Alaska Native Villages may become trust lands due to some recent legal cases. See the following article for more: Donald Mitchell,
“Taking Alaska Land into Federal Trust: How Did it Happen? What Can be Done?,” Alaska Dispatch News, June 29, 2016, accessed
October 11, 2017, https://www.adn.com/commentary/article/taking-alaska-tribal-land-trust-how-did-it-happen-what-can-be-
done/2015/09/02/.
On Reservation
Within 25 Miles
Beyond 25 Miles
Source: Housing
Assistance Council
*All census tracts are classied based on their controids / center points relationship to reservation lands. For example, census
tracts labeled “On Reservations” have their centroids / center point within federal reservation or o-reservation trust lands.
Map 1.
Census Tracts by Proximity to Reservation Lands
Proximity Federal
Reservation*
16 17
Analysis
Limited Native American Activity Overall
While lenders made a total of 7,248,155 home loans in 2015, only 43,926 home loans were made to Native American
borrowers.
vii, viii
The majority of these Native loans were conventional loans. The number of loans made to Native
American borrowers in 2015 represented a drop of more than 50 percent from 2006, when lenders originated 93,603
home loans to Native American borrowers. While the decline in loans obtained by Native Americans was similar to the
larger market patterns during this ten-year period, reecting the Great Recession and the economic fallout associated
with the foreclosure crisis, it was a slightly larger decline. The economic distress of the nation led to historically low
interest rates, which helped stabilize renance activity for both the market overall and Native American borrowers
specically. The actual percentage of all home loans originated to Native American borrowers remained relatively
consistent between 2006 and 2015, representing between 0.5 and 0.8 percent of all home lending activity nationwide.
vii. For this study, the term “home loans” refers to rst lien, home purchase, renance, and home improvement loans. The analysis
includes only rst lien home purchase loans because secondary lien status loans often refer to piggyback loans that were combined
with a rst lien loan to purchase a home. Including both loans would result in a double counting of the data.
viii. Loan data are classied based on the applicant solely, not the co-applicant.
Figure 1.
The number of home loans made to Native Americans
has decreased since 2006
Total Refinance Home Purchase** Home Improvement
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0
2006
2007
2008
2013
2009
2014
2010
2015
2011
2012
*Loans selected are loans where the applicant (exclude co-applicant) self-identied as either
American Indian or Alaska Native alone or in combination with other races.
**Home purchase loans are limited to rst lien loans.
Source: HAC tabulations of HMDA data releases 2007 to 2016.
Number of Originations
16 17
This consistently small share of overall lending activity
is related to the size of Native American populations,
as Native American populations totaled 5.3 million or
just 1.6 percent of the total U.S. population in 2015.
However, population size alone does not fully explain
the extremely low levels of Native American lending
because Native American populations proportion
was still more than twice as large as the 0.6 percent
Native American share of all mortgage lending in 2015.
Another reason for the low Native American lending
volume is related to the rural vs. non-rural dierence.
Over 36 percent of Native American populations,
compared to 20 percent of the entire U.S. population,
lives in rural communities where lending activity is more
constrained.
ix
The relationship is a bit more complex,
though, because Native American borrowers are
underrepresented when it comes to rural lending as
well, making up 3 percent of the rural population but
only 1 percent of the loans. An additional reason for the
reduced lending volume is that one out of every four
rural Native American residents lives on reservation
lands, which have had historically low rates of mortgage
lending. In sum, Native American populations is
underrepresented in mortgage lending because they
make up a small share of the U.S. population and
are more likely to live in rural areas. But the primary
reason is because a large proportion resides on
reservation lands, where lending is severely stymied
due to land ownership issues, lower incomes, a higher
incidence of credit problems, and perceived anti-Native
discrimination.
54
Lending on Reservation Lands
Analyzing Native American lending patterns based
on proximity to reservation lands, brings to light the
large dierences in activity, particularly the dearth of
lending on reservation lands. Like the general U.S.
population, most of Native American populations lives
in metropolitan areas, indicating the overwhelming
majority of Native American mortgage lending occurs
on fee simple land. More than 70 percent of lending to
Native American borrowers occurred farther than 25
miles away from American Indian lands. On reservation
lands, lenders originated an annual average of just 919
loans to Native American borrowers between 2013 and
2015. That equates to an average of 1.9 loans per 1,000
Native American reservation residents, as compared to
the nation’s 22.3 loans per 1,000 U.S. residents. Loans
made on reservations underrepresent the population.
While 9 percent of Native American populations lives
on reservations, the number of loans made there only
represents 2 percent of lending to Native American
borrowers.
ix. In 2015, approximately 14.5 percent of all loans went to rural and small-town borrowers, but they made up 19.5 percent of the population.
Lower lending levels on Osage reservation
Source: HAC summation of HMDA reported loans 2013 through 2015 in the folowing census tracts
(state-county-census tract ps codes with on reservation rst and o-reservation second) 40113940007
and 40117957200
on reservation off reservation
14
29
Loans per Thousand Native American Residents
18 19
Reservation Census Tracts
To more closely explore the possible impact of trust lands on lending, the analysis compared
two census tracts that are geographically close to each other and have comparable
characteristics – poverty, educational attainment, and Native American population – but
dierent trust land status, with one tract lying entirely inside a reservation and the other
falling entirely outside the reservation. The example below compares Native American
lending activity in matched census tracts located on- and o-Osage reservation lands in
Oklahoma and shows a higher rate of lending activity done in the o-reservation land tracts.
18 19
High Denial Rates on Reservation Lands
The limited number of loans originated on American Indian lands corresponds with both low origination rates and
high denial rates. Lenders approved an annual average of just 35 percent of applications to Native Americans on
reservation lands between 2013 and 2015, considerably lower than the 50 percent origination rate associated with
Native American applicants o reservations. The Native American origination rate in general, and particularly for
on reservation land applications, looks even worse when considering the origination rate for all HMDA-reported
applications, regardless of race/ethnicity, was 62 percent in 2015. The dearth of loan originations to Native
Americans reects not only a lack of activity, but also extremely low rates of success for those who do apply.
Figure 2.
Disproportionately Low Share of Native American
Mortgage Lending Occurs on Reservation Lands
Source: HAC tabulation of HMDA data covering calendar year lending activity 2013-2015, annual averages
used. HAC tabulation of ACS 2008-2012 population data.
on reservation
Loans Population
within 25 miles beyond 25 miles
Percent Native American
64.6%
71.3%
25.9%
26.5%
9.5%
2.1%
20 21
Between 2013 and 2015, Native American application
denial rates averaged 20 percentage points higher on
Native American lands than o – 48 percent compared
to 28 percent. Lenders denied approximately one
out of every two applications on reservations. To put
that denial rate in perspective, lenders denied just 19
percent of all HMDA-reported applications in 2015.
These on- and o-reservation land dierences in
denial rates exist even when considering only rural
applications to Native Americans, indicating geography
alone does not explain the dierences.
High Denial Rates,
Denial rates for applications on reservation lands are
higher than fee simple land, regardless of property
type, although rates are higher for manufactured
homes than one-to-four family units, 53 percent and
44 percent, respectively. Comparatively, o-reservation,
lenders denied 49 percent of manufactured home
loan applications and 28 percent of one-to-four
family property applications to Native Americans.
Overall, application denial rates were higher for Native
American populations, as the denial rate for all 2015
HMDA report applications involving a one-to-four family
property was only 19 percent.
Credit history was the most often cited reason for
Native American application denials, which is the case
for loan denials in general. However, the degree to
which it was cited is extremely high. Lenders gave credit
history as a reason on reservation lands at a rate of 80
percent, as compared to 45 percent of all other Native
American-denied applications, and just 35 percent for
all loan denials.
Figure 3.
More applications are denied than originated on reservations*
on reservation
Originated Denied
within 25 miles beyond 25 miles
Percent of Mortgage Loan Applications
*Includes all renance and home improvement loans along with rst lien, home purchase loans. Loans selected where the applicant self-
identied as either American Indian or Alaska Native alone or in combination with other races. Geographies identied by locating census tract
data in relation to federal reservation and o-reservation trust land boundaries with ArcGIS.
Source: HAC tabulation of HMDA data covering calendar year lending activity 2013-2015, annual averages used.
34.7%
47.6%
52.4%
27.3%
49.3%
29.7%
20 21
Common on Reservation Lands
A relatively high percentage of applications to Native
Americans on reservation lands involve manufactured
homes, considering most reservation lands are in
rural areas where manufactured homes are more
common. While 9.5 percent of all rural applications
are for manufactured homes, it is about 39 percent of
all Native American applications on reservation lands.
Only 7 percent for Native American applications o the
reservation involved manufactured homes. The high
proportion of manufactured home applications on
reservation lands mirrors the prevalence of this kind of
housing in these communities. Over 56,000 units, or 17
percent of the occupied housing stock, on reservation
lands is manufactured housing. The high rates of
manufactured homes on reservation lands reect the
scarcity of high-quality built homes. This distribution of
housing units is consistent with the fact that 14 percent
of all rural occupied units are manufactured homes.
Chattel Loans with High Interest Rates
In many cases, manufactured home loans are in the
form of personal property or chattel loans, which
are similar to automobile loans. A side eect of the
increased number of manufactured home applications
is an elevated proportion of HMDA-reported loans
with high interest rates and fees (often called high
cost loans). Approximately 18 percent of originations
to Native Americans on reservation lands is high-cost,
compared to just 8 percent for Native American loans
o-reservation lands.
Figure 4.
Manufactured home lending activity is common on reservations
on reservation
Applications Originations
within 25 miles beyond 25 miles
Source: HAC tabulation of HMDA data covering calendar year lending activity 2013-2015, annual averages used.
Percent Activity Manufactured Homes
38.6%
23.9%
7.4%
4.0%
6.2%
3.1%
22 23
Limited Lender Involvement and Little
Industry Concentration
Approximately 37 percent of all lenders reporting
HMDA loans originated at least one loan to a Native
American in 2015, which was similar to 2013 and 2014.
Of these lenders, about 165 lenders originated a loan
to a Native American borrower on reservation lands,
resulting in fewer than 1,000 mortgage loans originated
per year. Most of these lenders serving American Indian
lands, 87 out of 165, originated only one loan. The four
largest-volume lenders in the U.S., as measured by
amount of assets, each originated at least one loan to a
Native American borrower on reservation lands as well.
x
Annually, the ten largest-volume lenders originated
one out of every three loans made to Native American
borrowers between 2013 and 2015. The concentration
is higher on reservation lands, where the ten largest-
volume lenders originated nearly six out of every ten
loans made to Native American borrowers.
Access to credit can be measured by the number of
bank branches, which is severely limited on reservation
lands. Of the 86,566 full service bank oces in the
United States in 2016, 156 were in reservation census
tracts. This amounts to 6,376 reservation residents
per full-service bank oce, compared to 3,571 people
per branch oce for the entire U.S; the ratio is almost
doubled on reservations. There has been a decline in
the number of bank oces between 2009 and 2016
and many of the closed branches were located in rural
areas, disproportionately aecting reservation areas.
55
This could be an issue in the future as more bank
oces close and lenders rely increasingly on online
services, because broadband is limited in these areas.
56
Reservation Lands
About half of all mortgage loans to Native American
borrowers were originated by banks,
xi
similar to overall
lending patterns between 2013 and 2015. Banks were
responsible for an even higher proportion of originations
on reservation lands though, abouttwo-thirds. More
specically, small and intermediate asset banks
xii
played
a larger role on reservation lands. Approximately 35
percent of bank activity on reservation lands involved
small and intermediate asset lenders, a relatively high
gure compared to their 23 percent share of all bank
lending. The role of non-bank lenders, particularly private
mortgage companies, has been growing considerably
over the last three years and Native American lending
patterns are no dierent. There was a 17-percentage
point increase in the amount of Native American lending
by private mortgage companies in just three years, from
2013 to 2015. Private mortgage companies accounted
for nearly 60 percent of all home purchase activity on
reservation lands in 2015.
There are two groups of lenders that play a large role
in originating mortgage loans on reservations. First,
companies specializing in manufactured home nancing,
such as Vanderbilt Mortgage and 21st Mortgage are
consistently listed in the top ten reservation lenders.
These two companies originated approximately 108
loans of the almost 1,000 mortgage loans made to Native
American borrowers on reservations in 2015. A majority
of the mortgage loans originated in Oglala Lakota County
were originated by manufactured lenders, for example.
57
Second, Mid America Mortgage, under the name 1st
Tribal Lending, which specializes in the HUD Section
184 product, originated 101 loans to Native American
borrowers on reservations in 2015, about 10% of the total
number of loans made on reservations.
x. The four largest asset lenders reporting HMDA loans for 2013, 2014, and 2015 were JP Morgan Chase Bank, Bank of America, Wells
Fargo Bank, and CitiBank, NA.
xi. This refers to lending activity by banks and savings and thrifts and their aliates.
xii. This analysis uses the Community Reinvestment Act regulator bank exam thresholds to dene small asset lenders. These asset size
exam thresholds change annually and can be found at https://www.ec.gov/CRA/examinations.htm.
22 23
Closer Look: Tribally Owned Institutions
Bay Bank, owned by the Oneida tribe in Green Bay, WI, is dedicated to serving the mortgage
needs of its Native American borrowers through the Section 184 loan program. This
relatively small lender with assets totaling $89 million makes loans on individually and tribally
owned trust land and serves a wide range of income levels. About 45 percent of the home
loans Bay Bank originated were on reservation land in 2015.
* Je Bowman and Tanya Krueger, “Helping Native Americans Become Homeowners through Section 184,”
Rural Voices, Fall 2017, http://ruralhome.org/storage/documents/rural-voices/rv-fall-2017.pdf#page=28.
Not surprisingly, two of the 20 largest-volume lenders
on reservation lands are American Indian-owned
institutions. There are roughly 19 Native owned
nancial institutions in the country, and they tend to
be relatively small, totaling just $2.5 billion in assets.
58
American Indian-owned Bay Bank and Bank 2 are both
consistently listed among the most active reservation
lenders. These two small-asset lenders, with just $89
and $102 million in assets in 2013, respectively, are
located near federally recognized reservations and
have strong relationships with their communities and
the BIA. In 2015, these two institutions originated 52 of
the fewer than 1000 loans made on reservation lands.
Federal Resources for
Native Mortgage Finance
The federal government plays an important role
in supporting aordable housing, with some of
these eorts specically targeting Native American
communities. Beyond standard programs that provide
assistance to lower income populations and rural areas,
certain resources are reserved for tribal members and
activity on reservation land. The following section gives
an overview of these resources, including the HUD
Section 184 program, Veterans Aairs (VA) Home Loan
programs, USDA Rural Housing Loan program, and the
HUD Indian Housing Block Grant program.
xiii
See chart on page 29.
xiii. FHA is not discussed in this report as it is not widely used on reservation land.
24 25
Figure 5.
Banks originate a higher proportion of home loans on
reservations than other type of lenders
on reservation
Bank and Savings and Thrifts Private Mortgage Companies Credit Union Affiliates
within 25 miles beyond 25 miles
Source: HAC tabulation of HMDA data covering calendar year activity, 2013-15, annual average.
Percent of Originations
62.0%
43.6%
45.8%
30.9%
42.6%
9.3%
38.1%
9.6%
6.5%
4.6%
4.6%
2.5%
24 25
HUD Section 184 Program
HUD’s Section 184 program was established in 1992
and designed to be highly exible and adaptable to the
specic circumstances of each tribal setting. Eligible
borrowers include federally recognized Indian tribes,
Indian Housing Authorities/Tribally Designated Housing
Entities, and currently enrolled tribal members who
will occupy a property as a principal residence. The
program provides a 100 percent loan guarantee as
an incentive for private lenders who would otherwise
be averse to lending on reservation lands. This
government guarantee reduces the risk of lenders
not recouping funds in the case of a foreclosure. In
addition, after a lender conducts its due diligence,
it is not responsible for navigating tribal court as
HUD pursues the foreclosure. As the FDIC notes, the
guarantee “increases the marketability and value of the
Native assets and strengthens the nancial standing of
Native Communities.”
59
While a Section 184 loan is government-guaranteed,
since it is made by a private lender, it is considered
made by a conventional lender. In HDMA, it is
reported with other conventional loans and cannot
be distinguished. However, HUD gures state that
3,011 Section 184 mortgage loans have been made to
American Indians on reservation lands since 1994, as
compared to 25,221 of these loans made on fee simple
land. The numbers vary considerably from year to year
though. In 2002, the number of such loans made on
reservation lands jumped from 31 to 207 and in 2011
reached a high point of 465.
60
However, the number of
conventional lenders that make Section 184 loans has
dropped precipitously in recent years. In 2006, about
130 banks and 150 other lenders, including mortgage
companies, credit unions, and housing authorities,
participated in the program,
61
but by April 2017, there
was a total of only 122 approved lenders.
62
Figure 6.
HUD Section 184 Loans by Land Type
Fee Simple Land Tribal Trust Land Allotted/Individual Trust Land
5000
4000
3000
2000
1000
0
1994
1995
1996
1997
1998
2007
1999
2008
2000
2009
2001
2010
2002
2011
2003
2012
2004
2013
2005
2014
2006
2015
Source: Analysis of HUD data by Richard Todd of Federal Reserve Bank of Minneapolis.
26 27
The Section 184 program was initially restricted to
federal reservation and o-reservation trust lands. In
2005, however, the program was expanded to include
Native American tribal members living on fee simple
land in designated Indian-operating areas. These
“Indian areas” that exist outside of tribal trust lands
are petitioned for by a tribe. Under HUD guidelines,
“if a tribe or tribal housing authority submits to HUD
documentation and clear and convincing evidence that
the tribe has a historical connection to the area or tribal
members reside in these areas, these entities could
provide homeownership opportunities beyond the
reservations.”
63
With this broadening of eligibility, HUD reports that
more than 90 percent of the Section 184 loans and
dollars loaned are originated o-reservation land, on
fee simple land. The fee simple lending totaled $128
million out of the $216 million in Section 184 loans
from 1994 to 2004, about 60 percent. From 2005 to
May 2015, Section 184 fee simple loans totaled $4.1
billion out of the total $4.5 billion, about 90 percent.
Three-quarters of the lending is concentrated in just
six western states, Oklahoma, Alaska, Arizona, New
Mexico, California, and Nevada, with about 45 percent
done in Oklahoma alone,
64
which is all fee simple land,
except for the Osage Reservation. While many more
tribal members have received mortgage loans through
the Section 184 program, it has done little to increase
access to lending on reservation lands.
The literature on the program suggests the tribe,
itself, plays an important role in successful lending.
Specically, the Federal Reserve Bank of San Francisco
researched the impact of Section 184 loans on loan
application outcomes for Native Americans on tribal
trust land. Through examining HMDA mortgage
data
xiv
from 2000 to 2006, they found that the
program signicantly increased loan approval rates
for Native Americans on trust land, but that the eect
disappeared when controlling for tribe xed eects.
That is, the characteristics of the tribe involved may be
more important than the program itself to mortgage
approval rates, specically a willingness to put forward
the eort and resources that make the program
successful.
65
As the Federal Reserve notes in their study
of trust land lending and Section 184 program,
steps to overcome some of the other barriers
to mortgage lending – such as creating a strong
tribal housing agency that can help borrowers
through the home ownership process and fostering
good working relationships with the BIA and local
lenders – may be a precondition for promoting
homeownership…
66
This suggests the government guarantee oered
through Section 184 alone is not the decisive factor to
increasing access to home lending on reservations.
The U.S. Department of Veterans Aairs (VA) provides
veterans with several housing benets. Among these
benets is the home loan guarantee program, which
is available to all eligible veterans. The VA also oers
a specic program for Native American veterans on
reservation lands, the Native American Direct Loan
program. Both programs make available to Native
American veterans signicant resources in obtaining a
home mortgage; thus, they play a critical role in lending
to the Native American community.
The VA home loan guarantee program provides
federal government loan guarantees to qualifying
xiv. The Federal Reserve Bank of San Francisco assumed that all conventional loans occurring on trust land are Section 184 loans.
26 27
private market home loans originated to veterans
and their families. Since its inception in 1944, it has
assisted more than 22 million households, including
many American Indian or Alaska Native veterans, in
purchasing homes.
67
The VA loan guarantee means
lower lender risk (no foreclosure loss), which translates
into lower borrower costs (lower interest rates, no
mortgage insurance, and no down payment).
The VA loan guarantee program has increased its loan
volume signicantly as the Great Recession reduced
conventional loan activity. The number of loans
increased from about 135,000 loans pre-recession in
2005 to over 500,000 loans in 2015. Native American
borrowers accounted for 5,695 of these loans in 2015.
The VA guaranteed loans played a relatively large role
in mortgage lending to Native American populations
in general. While VA guaranteed loans represented 8
percent of all loans originated annually between 2013
and 2015, they represented an even larger 12 percent
share of all loans to Native American borrowers. VA
loan guarantees, however, are generally not done for
mortgages on trust land because they rely on private
market loans and lenders do not make many, if any,
loans on trust lands.
68
To address this issue, the VA
developed a direct loan product – the Native American
Direct Loan.
Native American Direct Loan
The Native American Direct Loan (NADL) program,
which began in 1992, focuses on assisting veterans
that live on federal reservation lands, Alaska Native
villages, and Hawaiian Homelands. The NADL program
diers from the standard VA loan in a fundamental
way. It is not a guarantee made by private lenders, but
a direct loan made by the VA. The NADL requires that
tribes establish memoranda of understanding (MOUs)
with the VA beforehand. These legal agreements
spell out how the program will be operated and the
responsibilities of both the Indian nation and the
federal government. Because lending on trust land
does not follow standard procedure, these documents
clarify how the process should work to satisfy both
parties. The MOUs specify that the tribe must enter
into a lease agreement with the borrower for the land
on which the NADL mortgaged home is located, and it
must recognize that the lender (VA) has the same rights
as a mortgage holder if the borrower defaults.
69
Beyond
these dierences, the standard VA and NADL loans
have similar favorable loan terms, including no down
payment requirement and relatively low interest rates.
While more than 90 federally recognized tribes or
Pacic Island territories have an MOU with the VA,
70
there has been little NADL lending activity. The NADL
program reports originated an average of 21 loans
annually between 2013 and 2015,
71
although it did have
high points in 2003 with 120 loans and in 2010 with
103 loans. It is noteworthy that most of these loans are
made in Hawaii and the Pacic Island territories, where
they are most successful. As of calendar year 2011, 90
percent of these loans were made in American Samoa
and Hawaii.
The disproportionate use of the program
outside of the lower 48 is possibly due to higher income
levels, adequate credit, and established infrastructure
in Hawaii.
72
With an average of only 21 NADL loans
originated annually for a potential eligible population
of 20,013 Native American veterans on trust land, this
amounts to about one loan per thousand
xvi
Native
Americans, as opposed to the much higher rate of 23.4
loans per thousand for the entire U.S. population. The
VA has continued to expand activity though and is likely
to keep eorts up.
73
While this program does increase
access to homeownership, its power is limited in that
only a small percentage of Native American populations
is eligible as a veteran.
xv. This analysis estimated 31 VA loans on reservation land during the 2013 to 2015 period. The higher number likely reects the inclusion of
some fee-simple land transactions in the reservation land totals. The numbers, while dierent, both show the extremely limited nature of
the activity.
xvi. The comparison here is using the “AIAN alone” veteran population not the “alone and in combination” population which is used
throughout this study. The reason is that this was all that is available for the veteran estimates. Because most of the reservation land
population is AIAN alone the gure is likely very reliable, but it might overstate the amount of lending since it could omit a portion of the
“in combination” population.
28 29
Rural Housing Loan Programs
The U.S. Department of Agriculture (USDA) provides
home loan assistance for rural residents with very
low-, low- and moderate-incomes through Rural
Development. Section 502 mortgage loans oer two
types of assistance: direct home loans to very low-
and low-income households and loan guarantees for
low- and moderate-income households. Although
these programs do not specically target Native
American populations, they stand out in their
support for mortgage lending in rural communities.
Most reservation land is in rural areas, meaning the
Section 502 programs have the potential to expand
homeownership to a signicant portion of Native
American populations living on reservations. Section
502 loan programs are restricted to USDA-dened
rural areas,
xvii
which include the overwhelming majority
of the more than 1.83 million rural Native American
population. Given that these USDA programs assisted
over 129,000 households in purchasing homes during
scal year 2017, these products represent an important
home ownership resource to rural populations.
74
USDA Section 502 Direct Home Loan
The USDA Section 502 direct home loan program
began in 1949. It provides very low- and low-income
households (less than 80 percent of area median
income) with subsidized loans directly from the federal
government for homes that are modest in size, design,
and cost.
75
In addition to the income requirement,
borrowers must both be without adequate housing
and not qualify for a mortgage loan from other sources.
Section 502 direct loan terms can be up to 33 and 38
years, no down payment is required, and the interest
rate is subsidized to as low as 1 percent. Similar to the
VA’s direct loan product, the NADL, the USDA may enter
into an MOU with the tribe that spells out the lending
process rights and responsibilities of the involved
parties.
The volume of USDA Section 502 direct loans has
declined signicantly over the years. In the early 1970s,
there were over 100,000 direct loans each year, but by
scal year 2017, that number was down to 6,573.
76
This
means the volume of Section 502 direct lending today
is a mere 7 percent of 1970s levels, a change that,
among other things, reects a shift to the guaranteed
program. USDA data shows that between 2013 and
2015 an annual average of 6,912 USDA Section 502
direct loans were made, of which 102 went to Native
American borrowers and only 12 were on trust lands.
USDA Section 502 Loan Guarantee
The USDA Section 502 home loan guarantee program,
which began operating permanently in 1992, provides
federal government loan guarantees to qualifying
private market home loans. Among the requirements,
the borrower must be below moderate-income (less
than 115 percent of the area median income) and live
in a USDA-dened rural community. The Section 502
loan guarantee, like the VA loan guarantee, serves to
lower lender risk, and in doing so, make aordable
loans available where they otherwise might not be. The
loan guarantee is available to a broader income range
than direct loans, with the stipulation that the borrower
must be unable to qualify for other mortgage loans.
The guarantee provides a xed rate, 30-year mortgage,
where costs and expenses can be rolled into the
monthly payment to make it aordable.
77
The USDA Section 502 loan guarantee program is
much larger than the direct loan program. In scal year
2017, there were 122,910 Section 502 loan guarantees
xvii. The USDA rural denition is quite complex. See the following paper for a closer explanation and a comparison of it to other
approaches dening rural: http://www.ruralhome.org/storage/documents/ruraldenition.pdf.
28 29
totaling $15 billion. The dollar amount of Section 502
activity increased dramatically after the Great Recession
began in 2007, from less than $5 billion a year in
guarantees for 2006 to $15 billion by 2009.
78
Because
HMDA contains only-lender provided data, it covers
USDA 502 guarantee loans but not Section 502 direct
loans. Between 2013 and 2015, HMDA data reports
an annual average of 127,348 USDA Section 502 loan
guarantees were made, of which 752 went to Native
American borrowers. This represents just 2 percent of
all loans made to Native Americans, but accounts for
4 percent of rural Native American lending, which is
similar to the program’s overall share of rural lending,
which is 5 percent. There are no resources that provide
a count of USDA Section 502 loan guarantees involving
properties on trust lands. This study’s analysis of HMDA
data using the approximated reservation land areas
identied between 15 and 20 guarantees on trust lands
each of the last three years, but this number likely
overstates the numbers by including some properties
on fee-simple land.
xviii
In either case, the number of
USDA loans for both programs is very small, similar to
the VA’s NADL activity, which highlights the seemingly
universal diculty in facilitating mortgage lending on
trust lands. The HMDA data highlights the limited USDA
Section 502 guaranteed lending to Native American
borrowers in general, with activity on reservation lands
uncommon.
In October 2000, the One Stop Mortgage Center
Initiative in Indian Country began the collaboration of
the BIA, USDA, HUD, and VA to streamline mortgage
lending in Indian Country by building capacity to
promote homeownership, improving homebuyer
education and nancial skills programs, and increasing
private sector involvement. The initiative produced
model documents including leases and MOUs and
developed model tribal lending procedures for lien
priority, eviction and foreclosure, and leasing in order
to facilitate lending and help overcome land ownership
issues.
79
The Initiative strived to create standardized
models as a potential solution for accessing federal
loan programs. Unfortunately, the standard approach
was dicult to implement, given that there are
hundreds of tribes, each with their own ways of doing
things that do not easily t within a standardized set of
rules or a market-based approach to housing.
HUD Indian Housing Block
Grant program
HUD’s Indian Housing Block Grant (IHBG) program is
the largest single source of housing funding dedicated
to tribes for use on reservation lands. While it does
not focus solely on home ownership and mortgage
nancing, its contributions to developing housing on
reservation lands must be acknowledged. This block
grant involves the consolidation of multiple housing
assistance programs into a single source of funding.
80
HUD awards IHBG funds to tribes or their designated
housing entities using a needs-based formula. Tribes
have great discretion in how they use program funds
to promote “aordable housing opportunities and
housing-related activities to low and moderate-income
members.”
81
In 2016, HUD awarded $660 million to American
Indian tribes. Tribes used 33 percent of IHBG monies
for development activities between 2008 and 2013.
With those funds, they built 7,450 aordable homes,
acquired 3,650 homes, and substantially rehabilitated
21,612 homes.
82
However, the resulting increase in
the supply of quality homes might not be captured in
HMDA data if there were no associated mortgages.
The IHBG was created initially by the Native American
Housing Assistance and Self-Determination Act
xviii. Given the small number of HMDA records identied each of the three years, it is possible that they may all be on fee-simple land that
is interspersed among reservation lands. The estimate conrms that any Section 502 loan guarantee activity is very small.
30 31
(NAHASDA) of 1996, which recognized tribal sovereignty
and rearmed self-determination.
83
NAHASDA was last
reauthorized in 2008 but the authorization expired in
2013. While the program is still being funded, ination
has cut funding by nearly a third in the past two
decades and planning is made dicult without this
guarantee of funding. While NAHASDA improves the
housing conditions of many American Indians, stagnant
federal funding for the largest investment dedicated
to housing development on reservation lands sties its
potential.
While home ownership is important, rental units make up a signicant portion of the housing
stock on reservation lands. There are an estimated 102,135 renter-occupied housing units
on American Indian lands, representing 31 percent of all households living there. This
rental rate is slightly higher than the 28 percent rate in similar rural and small-town areas.
There is also considerable variation in the role rental units play in local housing markets
from reservation to reservation. While rentals constitute an average of 31 percent of all
households living on American Indian lands, they make up at least 50 percent in 125 out
of 325 reservations. For example, 50 percent of the Standing Rock Reservation’s 2,240
occupied units are rented, compared to just 20 percent of the Oneida Reservation’s 8,564
occupied units.
In general, renters on reservation lands are less likely to be cost-burdened than those living
o-reservation, 40 percent and 52 percent, respectively. However, some tribes have higher
rates; more than half of the renters on 62 of the 325 reservations are cost-burdened. On
the other side of the spectrum, some tribally designated housing entities that own rental
properties on reservation lands make units available to tribal members rent-free. This likely
makes up the estimated 16 percent of occupied rental units on American Indian lands that
are classied as having “no cash rent.” For some properties, particularly the HUD rent-to-own
Mutual Help Homeownership Opportunity Program, the appropriate classication as renter
or owner is unclear in HMDA data.
30 31
the Challenges on
Reservation Lands
The current policies and programs encouraging
mortgage lending on federal reservation lands have
not substantially increased the number of loans, as
demonstrated by the data. A comprehensive strategy
that encompasses all facets is necessary. The economic
circumstances of the population, land ownership
issues, and bureaucratic governmental oversight have
all contributed to constrained mortgage lending on
reservation land. Bearing these impediments in mind,
it is helpful to reevaluate the current approach and
consider new solutions that could minimize the barriers
to entry and widen Native American access to mortgage
lending. Concrete examples of these ideas demonstrate
how they are already being put into practice.
Underlying Considerations
There are 326 federally recognized landholding tribes
in the United States, each with their own laws and
governments. Therefore, mortgage lending rules and
procedures cannot be standardized, as they cannot
possibly meet the diverse needs of tribes. As such,
policies must be made exible to serve each tribe.
In addition, buy-in is key to any policy’s success, so
tribal members should be oered a seat at the table
and be the ones to lead the discussion, sharing their
perspectives, ideas, and concerns, and ultimately come
up with solutions.
Idea 1: Increase Awareness
A possible area of focus could involve better educating
all involved parties about mortgage lending on
reservations, especially available products and how the
process works. Having a more complete understanding
of the process and the specic roles of all players may
help the involved parties be more understanding and
willing to work together. The following points touch on
areas where more education would be helpful.
• Educate borrowers. Potential loan applicants
need to be made aware of all the loan products
for which they qualify and guided to identify the
most cost-eective one for their nancial situation.
Additionally, nancial education would make
potential homebuyers more capable of obtaining
and keeping current a mortgage loan.
» 1st Tribal Lending, a subsidiary of Mid America
Mortgage, conducts tribal outreach about the
Section 184 program through YouTube videos.
84
» The USDA
85
requires all Section 502 borrowers
go to homebuyer counseling and there are
also several HUD-certied
86
housing counseling
agencies.
» Native Community Finance, a certied Native
CDFI on Laguna Pueblo lands, helps level the
playing eld by using a culturally appropriate
approach. NCF provides nancial education
for improving individual credit histories and
managing household budgets and oers home
ownership counseling.
87
Native Community
Finance also oers an innovative approach to
developing new construction on tribal trust
land by oering a short-term, interest-only loan
during the construction project in partnership
with the New Mexico Mortgage Finance
Authority, and when construction is complete,
the loan is repaid and NCF transfers the lien
on the property to the bank who supplies the
mortgage.
88
32 33
• Educate lenders. Lenders need to be better
informed on how to navigate the process including
tribal lending laws, MOU’s and working with the BIA.
Successful lenders could share their insight with
others as well.
» The Oce of the Comptroller of the Currency
publishes resources, papers, and educational
materials for lenders, one of which, is a guide
to mortgage lending in Indian Country that
provides an overview and answers questions
specic to banks.
89
» Lenders can make use of mechanisms and
processes that are already in place for land
with similar issues as tribal trust land like the
community land trust’s ground lease rider used
for land that cannot be used as collateral.
90
• Educate stakeholders who partner with tribes.
An understanding about tribal norms, processes,
expectations, and customs would facilitate
collaboration and ultimately the establishment of a
strong home mortgage market. Consideration should
be given to such things as the appropriate way to
engage with a tribe, a willingness to work within
the tribal framework, and an understanding of how
culture inuences the process.
» The National Congress of American Indians
(NCAI) has developed a protocol to facilitate
partnering with tribes to address housing
needs.
91
Idea 2: Improve Capacity
Another area of focus could be improving the capacity
of all involved parties, so they can work more eectively
with existing programs and each other. Given the
land ownership issue, bureaucratic complexities,
and economic distress and geographic isolation
associated with many reservation lands, the institutional
capacity required to make a loan in a typical suburban
community would be insucient on reservation lands.
It is a daunting task to get the Bureau of Indian Aairs,
Department of Housing and Urban Development
(or other government agency involved with the loan
product), tribe, lender, and borrower all to understand
and agree on an ecient process for mortgage lending
that works well for each party. This means that even
if lender concerns are mitigated through government
guarantees or memoranda of understanding, the
involved parties must have enough institutional capacity
to make the loan origination happen in an ecient and
timely manner. The following points touch on areas
where dedicated eorts might be most fruitful.
• Expand the capacity of lenders to work with
programs that increase lending on reservation lands.
» For example, Bay Bank, a small Native-owned
institution in Wisconsin, is one of the largest
processers of Section 184 loans on reservation
lands. It has sta members dedicated to
underwriting and servicing these kinds of
mortgage loans. Because of their experience
and understanding of the process, HUD allows
the Bay Bank sta to approve certain documents
themselves, rather than sending them to HUD
for review. This streamlines the process and
allows for more eciency.
92
• Expand the capacity of local nonprots and CDFIs to
better access available resources.
» For instance, Native Community Finance
CDFI is approved to package USDA Section
502 direct mortgage loans, making this
form of credit more widely available
to over 22 tribes in New Mexico.
93
32 33
• Expand the capacity of the BIA’s Division of Land
Title and Records (DLTR) and its Land Titles and
Records Oces (LTRO) or outsource its title
processing and data cleaning duties.
» The Confederated Salish and Kootenai
tribal sta on the Flathead Reservation in
Montana have developed a successful working
knowledge of the realty functions performed by
the BIA so they can make use of Public Law 93-
638, compacting the management of the land
titles and records on the reservation. TSRs are
produced quickly because the sta in the local
LTRO is personally familiar with the allotments,
including who the owner is and its location.
Moreover, the process is more ecient because
the sta has local signatory authority and more
control. It is also important that the Northwest
Regional Oce LTRO proactively certied all the
tracts and ownership on the reservation, which
saves time as there is no need to go back to the
original trust patent.
94
• Expand the capacity of tribes to exercise self-
determination. Tribal members must be able “to
bring decisions with local impact under local control
and to structure capable, culturally legitimate
institutions of self-government that can make
and manage those decisions.”
95
This cannot be
overstated. Restoring tribal self-determination and
self-governance has the power to begin resolving
deeply rooted and intergenerational problems like
Native Americans’ limited access to homeownership.
» The passing of NAHASDA and creation of Indian
Housing Block Grants recognized the right of
tribal self-governance and empowered tribes to
control their own aairs.
» The Helping Expedite and Advance Responsible
Tribal Home Ownership (HEARTH) Act of 2012
allows tribes with the governmental capacity
to take over the regulatory role of approving
land lease deals for tribal property from the
BIA by creating a leasing code of their own.
Brian Pierson, leader of Godfrey & Kahn SC’s
Native American law practice notes, “a carefully
structured leasing code could create the ability
for tribal members to freely exchange real
estate assets or to borrow o their homes in
times of need.”
96
Titles still need to be recorded
at an LTRO oce.
Incentives
Modied regulations could help improve rates of
mortgage lending on American Indian lands. Too
often bureaucracy and oversight are impediments
to lending that must be overcome. In the case of
lending on American Indian lands where lenders
may be apprehensive about providing access to
credit, regulations need to serve as incentives for
lenders to operate in such communities. There are
many regulations that could be explored to see if
modications might improve American Indian lands
access to credit. Encouraging investments in policies
like the Community Reinvestment Act (CRA) and Duty to
Serve could help expand housing markets and obviate
risk. The following are a few possibilities.
• Take Advantage of Newly Implemented Duty to
Serve.
97
» The recently implemented Duty to Serve
requirements for Fannie Mae and Freddie
Mac (the GSEs) oer a potential mechanism
to increase liquidity and encourage lending in
34 35
American Indian lands. Among other obligations,
Duty to Serve targets lending activities in rural
areas – specically high-needs (distressed
and underserved) rural areas that include
American Indian lands – and lending involving
manufactured homes. The GSEs are required
to plan how to increase their purchase of loans
from within these markets, and to periodically
review progress. To ensure the eorts are
successful, tribal governments should be
regularly consulted, as it is their communities
that should benet from increased activity.
» In order to meet the needs of Native Americans
through tailored lending, Fannie Mae plans
to rebrand, and market the Native American
Conventional Lending Initiative (NACLI) single-
family loan program, which oers exible
underwriting, and then purchase between 140
and 240 NACLI loans between 2018 and 2020.
98
• Improve the Community Reinvestment Act’s ability
to encourage investment on reservation lands. The
CRA requires depository institutions to meet the
credit needs of all segments of their service areas,
especially distressed and underserved census
tracts.
99
A lender’s service area is dened by where
its branches and oces are located. Since American
Indian lands rarely have branches or oces located
nearby, they are largely not included in any service
areas. Thus, lenders do not have a clear CRA-related
incentive to serve these lands. Financial regulators
evaluate lenders every two to ve years to determine
whether they are meeting their obligations. Achieving
a passing CRA grade is important, particularly for
large lenders that will be seeking regulatory approval
in the future for such things as branch openings
and institution acquisition. As part of this evaluation,
regulators look for and highly value lender service
area activity, including retail and community
development lending, that occurs in distressed and
underserved areas.
» A potential step to encourage CRA-related
activity in American Indian lands would be to
automatically consider activity to low-income
reservation residents to be accepted and
viewed as serving high-need areas, regardless
of whether locations are part of a lender’s
service area. Explicitly placing a high CRA value
on sound lending activity to this population
without limitations would give these lands
additional value for a large lender. Including
an acknowledgement on CRA examinations for
lenders that invest in projects on tribal trust
lands could also allow lenders to be recognized
explicitly for such eorts.
• Use creative approaches. Policies providing
additional support to other market-based
approaches could potentially help alleviate lender
concerns about providing access to credit on
reservation lands.
» The Sisseton Wahpeton Oyate tribe in South
Dakota invests in a risk mitigation pool that can
be used to purchase a home on reservation
lands, in case a loan does not perform. It acts
as a form of insurance to reduce the lender’s
risk.
100
34 35
Idea 4: Improve Collection and
Access to Data
A major impediment to addressing these concerns
is the lack of publicly available, high-quality, detailed
data. The public scrutiny of home lending activities on
American Indian lands is hampered. With more data
and transparency, more denitive conclusions could be
made, and more precise policy responses drafted. The
following are a few specic areas to address.
• Make more data publicly available.
» HMDA data should identify whether a loan
occurred on or o reservation lands.
» HMDA loan records should specically identify
Section 184 loans from within the conventional
loan category.
» Direct loans from government agencies like the
VA and USDA should be reported to HMDA.
• Improve data accuracy. Previous research has found
discrepancies in the number of loans reported in
studies and in HMDA data. This backs up some of
the ndings in this report and speaks to the need
for better data.
101
» When the sample size is small, the estimate has
high variability, hindering estimate precision.
The best way to address this concern is to use
multiple measures and be vigilant in noting
where there are concerns with data.
Discussion
for Future Action
Native Americans have made great strides in
strengthening their right to self-determination and in
reestablishing traditional laws and culture, but major
challenges remain. Broken treaties, forced relocation
and assimilation, and marginalization have resulted
in poverty and isolation, land ownership issues,
and bureaucracy that all work together to constrain
mortgage lending. The review of HMDA data conrms
that mortgage lending activity on reservation lands is a
rarity. Government resources have stepped in to serve
this population, but the current eorts have not been
able to overcome the impediments.
Solutions are attainable, specically related to
capacity, education, incentives, and data access. Firstly,
increasing the capacity of the involved parties would
help them navigate the complex process of mortgage
lending on reservation lands. Next, tribal members,
banks, and local governments need to be better
informed of available products and how to access
them. Additionally, regulatory changes could incentivize
banks and lenders to invest more in Indian Country.
Lastly, having more and better available data available
would give further insight into the issues. The ideas
proposed here could ensure more equitable access
to mortgage nance. For Native Americans, the trust
relationship has meant the guarantee of U.S. federal
protection of people and lands would be implemented.
While the federal government has had a history of not
fullling these obligations, the continuing responsibility
to do so still stands.
102
36 37
Appendix
Census Tract Reservation Land
The process of classifying census tracts in relation
to their proximity to federal reservation and o-
reservation lands started out using the 481 census-
dened “tribal tracts.” Tribal tracts subdivide federal
reservation and o-reservation trust lands into smaller
entities, like census tracts, based on populations and
recognized boundaries.
xix
Tribal tracts subdivide the
326 federal reservation lands. Thirty-two tribal tracts
have an ACS 2008-12 estimated population of zero. The
authors removed the 32 zero population tribal tracts
from the analysis.
Using ArcGIS to Evaluate Census Tracts
Using ArcGIS, the authors classied 2010 census tracts
based on their proximity to reservation lands. The
approach identied and then labeled census tracts
with their center point (centroid) located within a tribal
tract’s boundaries, as “on-reservation” lands. This result
in 273 on-reservation census tracts. The identied
census tracts are not entirely made up of reservation
lands because the boundaries of census tracts and
federally recognized reservations do not match.
In almost all cases, the larger portions of the land
areas of these “on-reservation” census tracts consist
of reservation lands. The ACS 2008-12 estimated
population of 993,407 on these “on-reservation lands”
census tracts is very similar to the federal reservation
trust land and o-reservation trust land population
estimate of 1,011,661.
To get a better understanding for how lending activity
compares on- and o-reservation lands, the authors
divided all other census tracts into two groups based
on proximity to reservation lands. The approach
identied 12,873 census tracts with their centroid
within 25 miles outside a reservation boundary.
Dierent distances were explored (see Map A1), and
an eort was made to identify those census tracts that
were reasonably close to reservation lands, a distance
that could be easily driven, and also were close enough
so that on-reservation and o-reservation areas
would be relatively similar. The selected census tracts
essentially represent the areas and populations close
to reservation lands. The remaining census tracts are
considered “all other.” A comparison of the median
percent of census tract populations that are Native
American (reservation lands (53.9 percent), within
10 miles of reservation lands (1.3 percent), and all
other areas (0.6 percent)) shows a decreasing relative
presence, as expected. Map A1 shows all proximity
broken down by multiple categories.
xix. See the United States Census Bureau webpage, accessed August 14, 2017, https://www.census.gov/geo/reference/gtc/gtc_tr_ct.html.
36 37
On Reservation Within 5 Miles Greater than 5 to 10 Miles
Greater than 10 to 25 Miles Beyond 25 Miles
Source: Housing Assistance Council
*All census tracts are classied based on their controids / center points relationship to reservation lands. For example, census
tracts labeled “In Reservations” have their centroids / center point within federal reservation or o-reservation trust lands.
Map A1.
Expanded Categories
Census Tract
Proximity Federal Reservation*
38 39
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