Southwest Office of Native American Programs - PowerPoint Presentation

Slide1

Southwest Office of Native American ProgramsOne N Central Ave, Suite 600Phoenix, AZ 85004602-379-7202

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

OFFICE OF NATIVE AMERICAN PROGRAMS

HUD Section 184 Loan Guarantees - 2018 Slide2

Indian Lands Today

Indian Trust Land

Has

Unique Legal Status

In general, trust land means land in which the title is held in trust by the BIA for the benefits of an Indian or Indian tribe, as it is inalienable.

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Trust lands also include lands to which the title is held by an Indian tribe, subject to a restriction against alienation imposed by the BIA.

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Because of the difficulty in obtaining a security interest in individual plots, mortgage lending practices have traditionally not operated in this forum.Slide3

Lease

Title Status Report

Financials

Mortgage

A Housing Crisis in

Indian Country

Over the years, individuals living on Indian reservations have not been able to access traditional

forms of credit for home mortgages,

which has contributed to the

current housing crisis on many

reservations.

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The word "infrastructure" means nothing more than a basic framework. It is like the frame of a house or a skeleton.

"Legal" refers to the basic laws needed to begin to undertake housing and community development.

Tribal Legal InfrastructureSlide5

FEE

TRUST

ALLOTTED

LAW

Why is Indian Country More Complicated?

Program requirements and processing procedures vary, depending upon land status and funding sources

Types of land ownership:

Fee Simple

within an Indian Operating Area

(usually off reservation)

Allotted Trust

Tribal TrustSlide6

Each tribe is unique and may not face the same challenges. The list of identified barriers are historical and challenges even the most successful of tribes.

Identified Barriers

Disconnect between housing staff and tribal council

Frequent turnover in tribal housing staff and council

Lack of education in leveraging resources

Lack of clear procedures for:

BIA process

Land surveys

Land use policies

Legal Infrastructure

Environmental reviews

Lack of homebuyer education and assistance

The Beginning of New ChallengesSlide7

Create procedures to:

Identify housing needs and obstacles

Establish homeownership strategies, such as:

land use, zoning, lease processes, and legal ordinances

Establish qualifications and requirements for a tribal homeownership planner or guidance counselor position

Develop a Realty Department to facilitate tribal public works and services

Survey lands for accurate legal descriptions

(

#1 holdup with BIA

)

Determine a continuing source of education for all entities involved in

leveraging

and tribal homeownership opportunities

How Can Tribes Remove the Barriers?Slide8

LOAN GUARANTEES

Why Leveraging With

Loan Guarantees

Makes a DifferenceSlide9

Why Leverage?One source of funds can not meet your needsAddress current needs now

Current costs are lower than future costs

eliminates inflation risksCost savings by building more now

economies of scaleMultiple sources of funds reduce riskSpread out costs over multiple yearsSlide10

Why Section 184 ?

Available of Tribal Trust, Individual Allotted Trust, or Fee Simple in approved areas

Low down payment

Sometimes no down payment for low-income in tribal projects with IHBG/Title VI

Flexible underwriting standards

One qualifying ratio

Minimal and temporary mortgage insurance requirements

No income restrictions

No credit score requirements

Note: good credit is a requirement

Fully assumable for small fee, for qualified individuals

This gives flexibility to tribal projectsSlide11

Create Rental Housing for Members and Employees

With the tribe/TDHE as borrower/owner, the occupant does

not

need to be Native American. Each unit will have an assumable mortgage, allowing the tribe flexibility in converting the units to homeownership in the future.

Create a Self-Help Program

Members can make their investment through sweat-equity during the construction phase. Working with a contractor/developer, members can assist each other by donating their skills and labor.

Tribal Homeownership OpportunitiesSlide12

PROPOSED CONTRACT

ITEMIZED AMOUNT

SELF-HELP

? (Sweat Equity)

TRIBE

GIFT ? (Equity)

SITE PREP

6,000

X

PLUMBING

8,400

FOOTING/FOUNDATION

21,560

 PARKING SLAB

4,300

 LUMBER & TRUSSES

21,800

 LABOR

(firming walls/trusses)

11,400

 ROOFING & LABOR8,210

 HEATING – rough-in5,000PLUMBING – rough-in

4,500  ELECTRICAL – rough-in

8,745WINDOWS & DOORS

5,550EXTERIOR SIDING

14,350

EXTERIOR PAINTING1,890XX

INSULATION7,890DRYWALL13,400  INTERIOR TRIM2,350

INTERIOR

PAINTING

1,930

XXFLOORS (tile)

6,100 

FLOORS (carpeting)5,360

CABINETS & COUNTERTOPS

7,230

 APPLIANCES1,480 

HARDWARE - finish

2,875

HEATING - finish9,200

 PLUMBING - finish5,800 ELECTRICAL - finish

7,000

WATER

SERVICE

0

XSEWER SERVICE - Septic

0

XFINAL BACKFILL -CLEANUP1,849

XCONCRETE PATIO & WALKS

0TOTALS

197,7793,82011,669

REQUIRED INVESTMENT (2.25%)4,450630

0

SELF-HELP or TRIBAL-GIFT (or both)Balance of required investmentSlide13

REMOVE DOWN PAYMENT AND

MI

REQUIREMENTS BY INCLUDING PRORATED COST IN SECTION 184

TOTAL DEVELOMENT EXAMPLE

BREAKDOWN SINGLE HOME

SINGLE HOME LOAN

SINGLE HOME PAYMENT

Home & Site Dev.

$3,955,580

Home Construction

$197,779

Sale Price

$197,779

Total Loan Amount

$190,778

LESS Gift and Sweat Equity

LESS Gift and Sweat Equity

LESS Equity

$9,820

Monthly Payment Until 78% LTV

Site Work

$120,000

Site Work

$6,000

Base Loan

$187,959

Monthly P&I at 4.5% $967

Exterior Paint$37,800Exterior Paint$1,890NEW LOAN AMOUNTMonthly MI$40Interior Paint$38,600

Interior Paint

$1,930Base Loan

$187,959

Fire Insurance Est.$50Total Contribution

$196,400Total Contribution$9,820

Plus Guarantee Fee

$2,819

Total Payment$1,056 

  Total Loan Amount$190,778

Loan to Value (LTV)95%

Loan to Value (LTV)

95%

It is possible to include the total costs of infrastructure in the project, and pro rate that cost per home, and gift that amount to the homebuyer to hopefully reduce the LTV below 78%, thereby removing the monthly MI fee of $40. In this example, the total infrastructure would need to equal approximately: $919,280 for total project, or $45,964 per home, to remove the MISlide14

Features of

Section 184Slide15

Loan Guarantee RequirementsSection 184:Verification that the tribe has procedures and policies in place governing eviction and foreclosure if the guaranteed funds are used for construction, rehabilitation or acquisition of housing on an Indian reservation.

An environmental review must be performed in accordance with the regulations at 24 CFR Part 1000.18-1000.20

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What is the Guarantee?A federal guarantee is a pledge by the U.S. Government to repay all or a portion of the unpaid principal balance and accrued interest for an obligation by a borrower to a lender after a default under the terms of the repayment agreement.

The purpose of loan guarantee is to improve access to private capital markets and promote tribal economies through home ownership.

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Eligible BorrowersSECTION 184 LOAN PROGRAM

All Federally Recognized Tribes

Indian Housing AuthoritiesNative American IndividualsSlide18

Basic Section 184 Loan Features

30 years or less

1.5% guarantee fee

(financed in)

Fixed interest rate

.25% MI until 78% LTV

Fully assumable with small feeSlide19

Section 184 Eligible ActivitiesPurchase (acquisition)

One to four family unit

Purchase and rehabilitation

New construction

Can include up to 15% of hard-cost for home construction for off-site infrastructure

RehabilitationRefinance

Lower rate or cash-outSlide20

Property Requirements

Single family (1-4 units)

Meets construction and safety codes

Permanent foundation

InfrastructureSlide21
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Get Ready!Roles

Tribe/TDHE

HUDBIALenderSlide23

What Else Does the Tribe Do?

Creates Legal and Administrative Framework:

Foreclosure

Eviction

Surveys Land for Legal Descriptions

Conducts Environmental Reviews

Leases the Land

Records with BIA and Maintains RecordsEnforcement

Priority of lien

Leasing

LEASESlide24

Time Saver Tips !The tribe/TDHE can save valuable time and resources by requiring tribal members to get Pre-qualified with a lender before discussing or processing land leases.Determines maximum loan amount

Tells the tribe/TDHE the borrower is serious

Doesn’t waste BIA’s Time

Receives a commitment from the lender to lend the moneySlide25

What Does HUD Do?

Develops and implements policies for the program

Conducts training and marketingUnderwrites the loans

Issues the Loan Guarantees

25Slide26

What Does the BIA Do?

Serves as a trustee for tribal trust land

Approves lease/mortgage

Provides/updates Title

Status Reports:

Underwrites/reviews loan package for

allotted/restricted

T S R

BIASlide27

BIA Process

The Agency is the

primary contact

for tribes and lenders during the initial stages of mortgaging processing.

Agency is the primary client/customer of the LTRO.

Agency is the

“middleman”

between the tribes / lenders and the Land Title Record Office (LTRO).

BIA

Agency

LTRO is Indian Country’s “County Recording Office” - or title/abstract company.

LTRO is the final entity for determination of title documents that convey or encumber ownership on Indian land.

LTRO

Do Not DisturbSlide28

BIA Lease Process

Lease Approval Process

Upon receipt of lease package, ensure package is complete

If incomplete, send a letter identifying missing information

If complete:

Send letter acknowledging date of receipt of complete package; and

Review and issue decision within 30 days.

30-day clock for BIA review only starts when package is complete

(including any NEPA & valuation)

30 days to issue a decision

If miss deadline, parties may file a notice to compel action.

Send to parties to the lease:

Approval/disapproval decision, including basis for the determination and notification of any appeal rights.

ResidentialSlide29

BIA Lease Process

Continued…

Supporting Document

s

and Owner Consent

Owner consent/tribal resolution

Lessee authorization, with organizational document

A site plan or plan of development

An appraisal or other acceptable valuation or economic analysis (as required)

A legal description of the leased premises (with associated survey plat, as needed). Survey-grade GPS or other sufficient description.

Evidence of NEPA compliance (and compliance with other applicable environmental ad land use laws, as appropriate)

Information relating to the five statutory factors enumerated in the last sentence of U.S.C. 415(a).Slide30

BIA Lease Process

NEPA DOCUMENTATION

BIA will adopt EAs and EISs prepared by the following, but may require a supplement:

Another federal agency, Indian tribe, entity or person under 43 CFR 46.320 and 42 CFR 1506.3, including those prepared under 25 CFR part 1000

.

BIA will use any reasonable evidence that another Federal agency has accepted the environmental report, including but not limited to, letters of approval or acceptance.

NOTE: Since many EAs are under Part 58 and not always reviewed by HUD, OLG may require a review of the EA for loan guarantee.

Continued…Slide31

BIA TIMELINES

TYPE

ACTION

BIA DEADLINE

ACTION

FOR FAILED DEADLINE

SECTION

Residential

Lease

30

days

Parties may take action under

162.363

162.340

Amendment

30

days

Deemed approved

162.347

Assignment

30 daysParties may take action under 162.363162.351Sublease30 daysDeemed approved162.355Leasehold Mortgage20 daysParties may take action under 162.363162.359Slide32

What Does the Lender Do?

Lends the MONEY!

Loans are assets with timely & consistent payment streams

Underwriting limits and controls riskDeveloper knowledge & experience

Project based lending - sustainable cash flows & resources for repayment

Specific terms and conditionsEconomic life (different from useful life)

TIME IS MONEY!Slide33

Application Process for :

Section 184

The tribe or TDHE must demonstrate administrative, managerial and financial capacity.

First contact should be consultation with your Grants Management Specialist!Slide34

Section 184Tribe/TDHE as BorrowerTribe must show:Coverage of debt service

Audited financial statements

Evidence of authority to borrowNeedSkill and experience to undertake project

Marketing planIn good standing with other HUD grants Slide35

Section 184 Documents Checklists

Tribe/TDHE As Borrower

Lender Checklist

SEE HANDOUTSlide36

Market Study Review

Likelihood families can afford and will choose housing option

Income, age and family composition

Available housing types, sizes and prices

Vacancies

Very Project Specific

Time, place and product certain

Required by lenders, and funding agencies

Used to determine if your project can be successfulSlide37

Needs and Markets

Needs are NOT markets!

What type of housing do people currently have, compared to what you plan to supply?

What product do people want and are able/willing to pay for AND take pride in?

What is the existing demand for the housing at what price or rent levels?

Where do families want to live?Slide38

Does the Project “WORK” ?

Adequate funds meeting development budget for construction?

Does the project income (tenants rents) cover costs of projected operating expenses?

What are the gaps?

What are the sources to fill the gaps?

Reduce costs

Reduce debt service

Identify other funding sourcesSlide39

Project Feasibility and costs

Common Oversights:

Does not include the whole project

Inadequate construction reserves

Underestimation of soft costs

Financing

Legal

Architectural & engineering

Lack of flexibility in project planningSlide40

MORTGAGE LOAN FLOW CHART – NEW CONSTRUCTION

APPLICANT

ELIGIBILITY

DETERMINATION

1

Applicant contacts tribe to identify building site and

BOUNDARY SURVEY PLAT

2

Tribe submits Survey Plat to BIA Field Agency for

TITLE STATUS REPORT

and requests Environmental Clearance

3

Applicant obtains building and site plans, specifications and construction bids, application

3aTribe prepares and approves

RESIDENTIAL LEASE

4

BIA Agency reviews and approves Residential Lease

(after TSR and Environmental clearances)

5

Lender Underwriting and Approval6LOAN CLOSING7See Next SlideSlide41

Mortgage Loan Process Flow Chart

SEE HANDOUTSlide42

42

How much mortgage you can afford

Informal, no paperwork, no obligation

Figure is not exact

Lender Pre-Qualification for

Individual BorrowersSlide43

Commitment from the lender to lend you money

Tells maximum amount to can borrow

Tells the seller and tribe you are

serious

43

Lender Pre-Approval for

Individual BorrowersSlide44

44Individual Borrower

Be Prepared

Standard checklist of items to start the process.

Native American identification card

Employment history (2 years)

Recent year-to-date pay stub

Prior year W-2 forms

Self-employed – Tax returns (2 years)

Two months recent bank statements

Monthly debt informationSlide45

45CAPACITY. The ability to meet your payments.

CAPITAL

. Savings and assets for

collateral.

CHARACTER

. Credit history.

Lender ReviewsSlide46

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

Compensating factors allowed when 41% guide is exceeded.

Liabilities:

Recurring obligations

Contingent liabilities

Projected obligations

P.I.T.I (Principle, Interest, Taxes, Insurance)

CAPACITY

46Slide47

47

CAPITAL

Cash Investment:

Difference between the mortgage loan and the cost to acquire the property

Minimum investment: 1.25% to 2.25% based on maximum mortgage amount

Down payment sources :

Savings

Cash

Gift

401K

Investments

Secured funds

Sale of personal property

Sweat equityLandHome buyer assistance programs

Tribe / TDHE financial assistance :Gift from tribal funds

(No restriction on use or amounts)

Grant from NAHASDA funds

2

nd mortgage Security agreementValue in infrastructureSlide48

48

CHARACTER

Credit History:

HUD is concerned about a borrower’s overall payment pattern. Lenders look for:

Borrowing and payment habits

Previous and existing credit

Judgments, collections and liens

Lenders must investigate all major indications of derogatory credit and give the borrower an opportunity to explain in writing.Slide49

49Compensating

Factors

Payment history

Savings history

Job prospects

Overtime

Nontaxable income adjustments.Slide50

Expenses incurred to borrow moneyHow can they be paid?Added to the purchase priceFinanced (secured loan)PrepaidPaid by buyer or seller

50

Closing CostsSlide51

51DENIED????

Although being rejected for a loan can feel embarrassing or discouraging, remember that many people do not succeed in their first attempt to qualify. This does not mean that homeownership is out of reach.

When an application is rejected, the

Equal Credit Opportunity Act

requires the lender to send you a written explanation of the loan rejection within 30 days of a request.

If the loan is rejected on the basis of information in your credit report, the

Fair Credit Reporting Act

entitles you to request a free copy of your report within the next 60 days. Slide52

52

DISCRIMINATION?

What should you do if you feel excluded from certain neighborhoods or lenders?

Immediately contact HUD if you ever feel excluded from a neighborhood, particular house, or if you believe you are being discriminated against on the basis of race, color, religion, sex, nationality, familial status, or disability.

HUD’s Office of Fair Housing has a hotline for reporting incidents of discrimination:

1-800-669-9777

For hearing impaired: 1-800-927-9275Slide53

Help Others to Help Themselves

A Good Homebuyer Education Includes:

Household budgeting

Maintenance and repairs

Retaining property values to protect investment

Avoiding Foreclosure

An Educated Homebuyer is a Successful

HomeownerSlide54

Homebuyer Education Options:

HUD Approved Counseling Agencies

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

Native CDFIs

Do It Yourself – Homebuyer Education Online:

https://www.hudexchange.info/programs/housing-counseling/

www.ehomeamerica.orgSlide55

WORKING TOGETHER FOR THE FUTURE

HUD

SWONAP

Andrea V. Dunyon

Lead LG Specialist

One North Central Ave, Suite 600

Phoenix, AZ 85004

602-379-7202

THANK YOU !