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Community Developments Investments (September 2016)

Title VI Loan Guarantee Program

A home under construction in Pueblo de San IldefonsoOffice of Loan Guarantee, HUD
A home under construction in Pueblo de San Ildefonso

Robert Lamp, Loan Guarantee Specialist, U.S. Department of Housing and Urban Development

The Title VI Loan Guarantee (Title VI) Program and the Indian Housing Block Grant (IHBG) Program1 were authorized by the Native American Housing Assistance and Self Determination Act (NAHASDA) of 1996, as amended.2 The Title VI program provides loan guarantees to lenders financing housing development projects by IHBG recipients, typically Indian tribes and tribally designated housing entities (TDHE). The goal of the program is to promote the development of private capital markets to support affordable housing in Indian Country.3

Lenders benefit from the Title VI program because it provides them with limited risk exposure, reduced costs, increased loan marketability, and improved opportunities to market financial services. Loans guaranteed by this program may also count towards meeting the lenders’ community reinvestment goals. Tribes benefit because they can build more housing at current costs and use loans to leverage additional funds from other sources. Improved financial services from lenders permit flexible financing terms.

Additionally, the pledge and guarantee eliminate the need to use land as collateral for loans. Lenders avoid trust land issues in loan closing, and tribes allay their concerns of risking Native lands in obtaining financing.

Title VI Background

Over the years, the Title VI program has evolved and adapted to meet the needs of borrowers and lenders. Since its inception, the program has proven to be a useful tool in helping tribes and TDHEs secure affordable housing for their members with little cost to the government.

The first Title VI loan guarantee was issued in 2000 for $1.7 million to First National Bank Alaska. From 2000 through June 2016, the Title VI program processed 90 loans for $229 million in guarantees. The Title VI program has helped finance 3,148 housing units through rehabilitation, new construction, or creation of infrastructure. There have been no defaults, and 43 loans have been paid off in full.

The Title VI program is overseen by the Office of Native American Programs (ONAP) at the U.S. Department of Housing and Urban Development (HUD). The Office of Loan Guarantee (OLG) within ONAP administers the Title VI program. OLG staff is located at HUD headquarters in Washington, D.C.

The Title VI program works in conjunction with HUD’s IHBG program, which is a formula4 grant that provides a range of affordable housing activities on Indian reservations and on Indian areas. Under the federal budget for fiscal year (FY) 2016, HUD was allotted $648 million for the IHBG and $2 million for the Title VI program to be used as a credit subsidy for $17.5 million in guarantee authority.

How Title VI Works

A tribe or TDHE may pledge a portion of its annual IHBG program grant and the housing development project’s income as security to HUD in exchange for a Title VI loan guarantee. In turn, HUD provides a 95 percent guarantee of outstanding principal, plus accrued and unpaid interest as collateral to the lender. The lender then provides the financing to the tribe.

The maximum guarantee amount that a tribe or TDHE can borrow is approximately five times the need portion of its annual IHBG. The tribe or TDHE may have one or more Title VI loans, but the combined total of the loans may not exceed the maximum guarantee amount. The pledged funds from the IHBG annual grant are only pledged to HUD, and may be expended for the completion of the project, debt payments, or other affordable housing activities.

Once issued, the guarantee coverage is not affected by changes to the annual grant levels. The guarantee protects the lender from affordable housing projects that do not have a positive cash flow. Without land as collateral, the guarantee permits flexible loan structures and construction-permanent terms up to 20 years. It also limits default costs, since there are no foreclosures.

A guarantee has no minimum, which permits tribes to use the program for small projects or gap financing. Loan sizes have ranged from $170,000 to $50 million. The guaranteed loans have been used for acquisition, single and multifamily housing, transitional housing, gap financing for tax credit projects, infrastructure, community centers, housing offices and related warehouses, and recreation facilities. Generally, one tribe pledges its IHBG program grant to HUD, but in some instances, several tribes have combined their resources to maximize development.  

Title VI Process

The Title VI program uses a team approach with regular conference calls to help ensure project success by providing technical assistance, answering questions, and coordinating the various parties to keep the project on schedule. The main participants may include the tribe, the TDHE, the lender, the ONAP Area Office and OLG, and the HUD loan guarantee and development specialists.

The Title VI program has a two-step application process. First, the tribe or TDHE requests a preliminary letter of acceptance (PLA) from HUD. Second, the selected lender for the tribe or TDHE requests a firm commitment for a guarantee from HUD.

Up to six months may elapse between the PLA request and the request for a firm commitment. During this time, significant changes to the scope of the project and costs may occur. Project data must, however, be similar in both the preliminary request for acceptance and the request for a firm commitment.

Figure 1 illustrates the Title VI program’s typical two-step process, from application by the tribe, to the review and firm commitment by HUD, and finally, the granting of the guarantee and closure of the transaction.

Figure 1: Title VI Application and Loan Guarantee Process

Figure 1 illustrates the Title VI program?s typical two-step process, from application by the tribe, to the review and firm commitment by HUD, and finally, the granting of the guarantee and closure of the transaction.
Office of Loan Guarantee, HUD

If the tribe or TDHE is submitting project information to other funding sources, that information may be sufficient for documenting the Title VI loan request. If not, the OLG will request additional information from the borrower or lender.

The PLA is the OLG’s preliminary approval of a guarantee to a tribe or TDHE. Although this step is not required, it is highly recommended because it

  • verifies the amount of the available guarantee.
  • permits an early compliance check and feasibility review.
  • offers an opportunity to identify and address potential issues before they create project delays.
  • increases lender interest by documenting HUD’s willingness to issue the guarantee.
  • provides an opportunity for the local ONAP and the OLG to offer technical assistance.

The PLA stage is also a good opportunity for the lender to provide its financial expertise to assist the borrower with not only general financing terms, but also with knowledge on how to leverage and structure a project and pull together standard types of documentation, all of which help in building a solid relationship between the lender and the borrower.

Once the project planning is complete, the selected lender of the tribe or TDHE makes the application for the firm commitment with new and updated material following a general checklist. If the lender’s application for the firm commitment is approved, the lender and borrower must meet the conditions of the commitment and close the transaction in 90 days.

Title VI Flexibility

The entire Title VI process - from the request for the PLA to the issuance of a guarantee - is designed to be flexible to meet the needs of the project, tribe, borrower, and lender. The OLG ensures flexibility in the program by employing several strategies, including using

  • a two-step application process.
  • the lender’s standard loan documents.
  • regularly scheduled conference calls coordinating the guarantee and loan closing processes
  • checklist-based applications without specific forms or application deadlines.
  • plainly written loan guarantee documents.

Conclusion

It has been said that the Title VI program is the hidden gem of NAHASDA. Through HUD’s 95 percent payment guarantee, lenders gain access to underserved markets, reduce default risks, and reduce costs. Tribes/TDHEs obtain access to much needed capital while using pledged grant funds for the project, payment of debt service, or other eligible grant activities. Lender and borrower partnerships are built, which is reflected in the lack of any defaults during the 16-year history of the program.  

For more information, visit the Title VI program web page or contact Robert Lamp at robert.a.lamp@hud.gov.

Articles by non-OCC authors represent the authors’ own views and not necessarily the views of the OCC.

1 The IHBG program is a formula grant that provides a range of affordable housing activities on Indian reservations and other tribal lands. The U.S. Department of the Interior’s Bureau of Indian Affairs (BIA) defines a federal Indian reservation as “an area of land reserved for a tribe or tribes under treaty or other agreement with the United States, executive order, or federal statute or administrative action as permanent tribal homelands, and where the federal government holds title to the land in trust on behalf of the tribe” (see BIA’s FAQs).

2 See 25 USC 4101 et seq. and 24 CFR 1000.

3 “Indian Country” is a legally defined term in 18 USC 1151 that generally refers to Indian reservations and other Indian areas. The U.S. Department of the Interior’s Bureau of Indian Affairs (BIA) defines a federal Indian reservation as “an area of land reserved for a tribe or tribes under treaty or other agreement with the United States, executive order, or federal statute or administrative action as permanent tribal homelands, and where the federal government holds title to the land in trust on behalf of the tribe” (see BIA’s FAQs). Section IV of NAHASDA, as amended, defines Indian area as “the area within which an Indian tribe or a tribally designated housing entity, as authorized by 1 or more Indian tribes, to provides assistance under this Act for affordable housing.”

4 The IHBG program formula has two components: need and formula current assisted stock. The need component considers population, income, and housing conditions. The formula current assisted stock component reflects housing developed under the United States Housing Act of 1937 that is owned and or operated by the IHBG recipient and provides funds for ongoing operation of the housing. For more information, see the IHBG program’s website.

Success Spotlight: Two Title VI Projects

Robert Lamp, Loan Guarantee Specialist, U.S. Department of Housing and Urban Development

Pueblo de San Ildefonso
The Northern Pueblos Housing Authority in New Mexico built 10 units of lease-purchase housing in the Pueblo de San Ildefonso. The $2 million project used a $645,000 loan from the Rural Community Assistance Corporation guaranteed by the Title VI program.

Villages of Anaktuvuk Pass
The Tagiugmiullu Nunamiullu Housing Authority in Alaska used a $6,752,160 Title VI program loan from Wells Fargo to build 24 homeowner units in six villages. The units used high energy-efficient technology that significantly reduced energy costs and improved affordability in an extreme climate in northern Alaska. The Title VI guarantee was secured by pledges from six tribes in Alaska.

For more information, visit the Title VI program web page or contact Robert Lamp at robert.a.lamp@hud.gov.

A home in Pueblo de San IldefonsoOffice of Loan Guarantee, HUD
A home in Pueblo de San Ildefonso
Homes in one of the Villages of Anaktuvuk PassOffice of Loan Guarantee, HUD
Homes in one of the Villages of Anaktuvuk Pass
Articles by non-OCC authors represent the authors’ own views and not necessarily the views of the OCC.

Indian Housing Block Grant Program

Ammar Askari, Community Development Expert, OCC

The Indian Housing Block Grant (IHBG)1 Program is a formula grant program that provides funding for a range of affordable housing activities on Indian reservations and in Indian areas. The IHBG program is the principal means by which the United States fulfills its trust obligations to low-income American Indians and Alaska Natives to provide safe, decent, and sanitary housing. Furthermore, IHBG program grants are the main source of funding for housing assistance in Indian Country.

Eligible IHBG recipients typically are federally recognized Indian tribes or their tribally designated housing entities. An eligible recipient must submit to the U.S. Department of Housing and Urban Development (HUD) an Indian Housing Plan each year to receive funding. At the end of each year, recipients must submit to HUD an annual performance report on their progress in meeting the goals and objectives included in their Indian Housing Plans.2

According to the authorizing statute, eligible IHBG activities include housing development, assistance to housing previously developed under HUD programs, housing services to eligible families and individuals, crime prevention and safety, and model activities that provide creative approaches to solving affordable housing problems.3

Since its first funding year in 1998 through fiscal year (FY) 2016, the IHBG program has distributed almost $12 billion to approximately 360 recipients representing more than 550 tribal governments. Recipients have used those funds to build or acquire more than 38,000 affordable homes and rehabilitate more than 81,000 (in addition to other housing assistance activities, such as operation and maintenance).4

The FY 2017 budget request for the program was $700 million. HUD will distribute $698 million in block grant funds to approximately 369 recipients, from among 567 tribes in 34 States. HUD estimates that this level of funding would allow IHBG recipients to build, acquire, or substantially rehabilitate 5,065 affordable units in FY 2017. Recipients will also operate and maintain approximately 40,000 older affordable units.5

For more information, contact Ammar Askari at ammar.askari@occ.treas.gov.

1 See 25 USC 4101 et seq. and 24 CFR 1000.

2 Indian Housing Block Grant Program web page.

3 Ibid.

4 Office of Native American Programs, HUD.

5 See page 11-4, “Public and Indian Housing, Native American Housing Block Grants, 2017 Summary Statement and Initiatives,” U.S. Department of Housing and Urban Development, Fiscal Year 2017 Congressional Justifications.

Indian Home Loan Guarantee Program (Section 184)

Ammar Askari, Community Development Expert, OCC

The Indian Home Loan Guarantee Program (commonly referred to as the Section 184 loan program) is a federal home loan guarantee program for enrolled members of federally recognized tribes or for tribally designated housing entities.1 It provides a 100 percent guarantee on housing loans made by private lenders and tribal housing agencies to American Indian and Alaska Native borrowers, which can include tribes.

The program is administered by the Office of Loan Guarantee within the U.S. Department of Housing and Urban Development’s (HUD) Office of Native American Programs. HUD works with a broad group of private lenders and tribal partners to promote access to capital through this program. Potential borrowers are advised to take home buyer financial education courses.

Section 184 loans offer many advantages, including the following:

  • A low down payment—2.25 percent on loans of more than $50,000 and only 1.25 percent on loans of $50,000 or less.
  • A fixed interest rate—lenders charge market rate. No adjustable rate mortgages are permitted. Fees are monitored to prevent predatory loans.
  • The borrower pays a onetime 1.50 percent fee at closing, which can be financed into the loan with an annual increase of 0.15 percent of the remaining loan balance. In addition, loans with a loan-to-value ratio of 78 percent or greater are subject to an annual 0.15 percent mortgage insurance premium.2
  • Manual underwriting—the program uses a hands-on approach to underwriting and approval, as opposed to automated decision-making tools.
  • Liquidity—a Section 184-guaranteed loan, including the security given for the loan, may be sold or assigned by the lender to any financial institution. Section 184 loans are eligible for inclusion in Fannie Mae, Freddie Mac, and Ginnie Mae’s mortgage-backed securities. Additionally, some state housing financing agencies and federal home loan banks purchase Section 184 loans.

In fiscal year (FY) 2015, the Section 184 loan program guaranteed 4,198 loans for more than $738 million. The average loan in FY 2015 was $175,820.3 As of June 30, 2016, the program had guaranteed 34,700 loans over its 22-year life, providing over $5.7 billion in guaranteed funds.4

For more information, contact Ammar Askari at ammar.askari@occ.treas.gov.

1 Section 184 of the Housing and Community Development Act of 1992, codified at 12 USC 1715z-13a. The corresponding regulations can be found at 24 CFR 1005. For more information, see the IHLG program web page.

2 HUD anticipates an increase in the annual fee from 0.15 to 0.25 percent in FY 2017, while the upfront loan guarantee fee will remain at 1.50 percent.

3 See p. 12-3, “Public and Indian Housing, Indian Housing Loan Guarantee Fund (Section 184), 2017 Summary Statement and Initiatives,” U.S. Department of Housing and Urban Development, Fiscal Year 2017 Congressional Justifications.

4 Office of Native American Programs, HUD.