Lenders Made Few Conventional Home Purchase Loans to Native Americans on Trust Lands

Few Native Americans have purchased homes on trust lands by using private, conventional financing. The most significant barriers are that lenders (1) are uncertain about whether they can foreclose on Native American trust lands to recover their loan funds; (2) have difficulty understanding the implications of the different types of land ownership because of the complex status of Native American trust lands; (3) are unfamiliar with the tribal courts in which litigation is conducted in the event of a foreclosure; and (4) are concerned about the absence of housing ordinances governing foreclosures in tribal communities. We found that the lenders that made the 91 conventional home purchase loans to Native Americans on trust lands during the 5-year period of calendar years 1992 through 1996 did so by creating special programs or using long-standing relationships with tribes and their members to facilitate lending. The special programs emphasized homeownership counseling and the negotiation of housing ordinances. In addition, some public and private organizations are developing initiatives that could simplify and may have some potential to increase conventional home purchase lending to Native Americans on trust lands. Other Lending Initiatives for Native Americans on Trust Lands

The Office of the Comptroller of the Currency (OCC) and the Federal Home Loan Bank (FHLBank) System have efforts under way to address the broader issue of Native Americans’ access to financing and capital. New Law’s Effect on Conventional Home Purchase Lending on Trust Lands Is Uncertain

The extent to which the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA) will increase conventional home purchase lending for Native Americans on trust lands is uncertain. The act contains provisions that allow tribes to leverage grant funds and to extend land lease terms from 25 to 50 years. However, whether tribes can or will use leveraged funds to encourage conventional home purchase lending on trust lands is uncertain, and many tribes’ land lease terms already exceeded 25 years. Private mortgage lenders, as they become knowledgeable of the process of making home purchase loans on trust lands, may increase the number of such loans. Conventional home purchase loans are made by private lenders without federal assistance, such as federal loan guarantees or insurance. We also visited and interviewed members of the Navajo Tribe and the Oneida Tribe of Indians of Wisconsin and lenders that made conventional home purchase loans on Native American trust lands. Despite a large backlog of requests for title documents, BIA’s certification process for trust lands has not been a deterrent to conventional home purchase lending. Additional Barriers Impede Lenders From Making Conventional Home Purchase Loans to Native Americans on Trust Lands

In addition to the barriers discussed in the body of this report, two other barriers have made it difficult to attract private financing for Native Americans to buy homes on trust lands: (1) the low socioeconomic status of many Native Americans on trust lands and (2) the remoteness of the Native American trust lands. To learn whether implementing the Native American Housing Assistance and Self-Determination Act of 1996 will result in more conventional home purchase loans being made to Native Americans on trust lands, we reviewed the act; reviewed literature on the act; and interviewed representatives of HUD, lending organizations, and tribal organizations to gain their perspectives on the law. Washington, D.C.: May 1996.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the homeownership opportunities for Native Americans on trust lands through private, conventional lending, focusing on: (1) the number of conventional home purchase loans private lenders made to Native Americans on trust lands; (2) the major barriers to conventional home purchase lending to Native Americans on trust lands; (3) efforts to facilitate conventional home purchase lending to Native Americans on trust lands; (4) whether the implementation of the Native American Housing Assistance and Self-Determination Act of 1996 will result in more conventional home purchase loans being made to Native Americans on trust lands; and (5) whether the backlog at the Bureau of Indian Affairs of requests for certifying documents affecting the legal status of the trust lands has been a deterrent to conventional home purchase lending to Native Americans.

What GAO Found

GAO noted that: (1) few Native Americans have purchased homes on trust lands by using private, conventional financing; (2) during the 5-year period of calendar year 1992 through 1996, lenders made only 91 conventional home purchase loans to Native Americans on trust lands; (3) moreover, of the 91 such loans GAO identified, 80 were made to the members of two tribes--the Tulalips of Marysville, Washington, and the Oneida Tribe of Indians of Wisconsin; (4) making conventional home purchase loans on Native American trust lands involves overcoming long-standing barriers; (5) the most significant barriers are that lenders: (a) are uncertain about whether they can foreclose on Native American trust lands to recover their loan funds; (b) have difficulty understanding the implications of the different types of land ownership because of the complex status of Native American trust lands; (c) are unfamilar with the tribal courts in which litigation is conducted in the event of a foreclosure; and (d) are concerned about the absence of housing ordinances governing foreclosure in tribal communities; (6) some mortgage lenders, as well as public and private organizations, have initiated efforts to increase Native Americans' opportunities to finance homes on trust lands with conventional home purchase loans; (7) to make the 91 loans GAO identified, lenders created special programs emphasizing the development of housing ordinances and homeownership counseling services or used long-standing relationships with tribes and tribe members; (8) other broader public and private efforts begun recently, such as the Federal National Mortgage Association's lending initiatives for Native Americans, may have some potential for increasing the number of conventional home purchase loans on trust lands; (9) other efforts by the Federal Home Loan Bank System and the Office of the Comptroller of the Currency may have some potential for improving Native Americans' overall access to financing and capital, which may, among other things, encourage more conventional home purchase loans on trust lands; (10) the extent to which the Native American Housing Assistance and Self-Determination Act of 1996 will increase conventional home purchase lending for Native Americans on trust lands is uncertain; (11) this act, which became effective on October 1, 1997, contains provisions that allow tribes to leverage housing block grant funds and extend land lease terms from 25 to 50 years; and (12) however, whether tribes can or will use leveraged funds to encourage conventional home purchase lending is uncertain, and many tribes' land lease terms have already exceeded 25 years.