Senate Indian Affairs Committee Hearing
Introduction
Chairman Barrasso, Vice Chairman
My name is
We have utilized numerous federal government programs to assist us with these efforts, including the HUD-184 Home Loan Program, the HUD-Title VI Loan Program, the
Since our inception, we have provided approximately
We have provided capital in the form of loans for many different businesses including; trucking companies, an oil field servicing company, a forest firefighting company, a coffee house, an auto body shop, an oil lube shop, a natural gas distribution company for rural
We have received numerous awards for this activity including the "Access to Capital Award" in 2011 presented by the
We believe our consistent and intentional service to Indian country makes us uniquely qualified to testify before this committee. Through our experiences we can provide this committee with success stories of what really works and what needs to be fixed. In many of these situations, we believe we know what is necessary to fix the problem(s).
We have made Indian and Indian country loans from
We pray our testimony proves to be very valuable to this Committee.
BIA Commercial Loan Guaranty Program
Eligible Borrowers
. Tribes
. Housing Authorities
.
. Individual Enrolled Native American
. Native American Owned Business (51% or more)
The Purpose of the Program
The purpose is to encourage eligible borrowers to develop viable Indian businesses through conventional lender financing. The direct function of the Program is to help lenders reduce excessive risks on loans they make. That function in turn helps borrowers secure conventional financing that might otherwise be unattainable.
Funds may be used for:
. Business loans
. Operating capital
. Equipment purchases
. Business refinance
. Lines of credit
. Real estate
. Construction
Positive Aspects of the Program:
. Designed specifically to benefit Native American businesses and individuals
. Typically works well on smaller loan sizes and start-ups
. Offers a 90% guaranty
. Helps tribes to promote economic development on and off of reservations
. Promotes economic opportunity for American Indians, Indian tribes and Alaska Natives while protecting trust resources
. Interest rates and terms are similar to conventional commercial loans
Examples of BIA success stories:
2-New Native American Business Loans
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Negative Aspects of the Program:
. Often takes several months to gain approval of loans
. Slow turn times for TSR's
. Larger loans must go through multiple approval levels
. The approval process and time frames are not clear
. No secondary market for the guaranteed portion of the loans
. Program capacity is not sufficient to meet the demand
. BIA loan guaranty fund is out of money for this year even as you read this testimony
Examples of BIA problems:
3-New Native American Businesses Not Able to Secure a BIA Loan
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Problems with BIA Guarantee Limits Access to Capital:
Some background on the secondary market issue:
We have talked with three different secondary market buyers and all have agreed that in a nut shell, the structure of the BIA program limits the ability to enforce the guarantee. One of our primary outlets for the secondary market told us that the BIA has acknowledged that this is not likely to change. According to our outlet, "...while the BIA realizes that the development of a secondary market is congressionally mandated, the functionality of that market is not a primary concern of the BIA."
There remains a problem with the requirement for the lender to submit any claim on the guarantee and limits the bank's ability to sell BIA loans in the future. It is unlikely that this issue will disappear in the near future without this committee's actions. This is primarily due to the fact that the BIA has the right to review the loan once the claim is submitted for payment by the lender and then determine whether or not the guaranty is valid. Intentionally, the vetting process is nowhere near that of the SBA or
Thus access to capital on reservations and tribal trust lands will continue to be restrained. If this committee truly wants to increase capital for commercial purposes in Indian country, a change in process to mirror that of the
Why it works and why it doesn't:
Why it Does Work:
Smaller loans that are not time sensitive can be approved at local levels and have worked well for us in the past. The BIA's flexibility in getting the loans approved helps Native Americans and their businesses. SBA and
Why it Does Not Work:
The vast majority of loan requests are time sensitive, if you have a program such as the BIA program that does not recognize this fact, most requests will never make it to closing. Additionally, the larger loan requests appear to be the ones that fall out or move to other programs because the current system is not efficient. The time sensitive and larger loans often don't have the flexibility to wait and go through what can be a lengthy approval process.
The larger loans require a loan guaranty because many of these lenders are small banks and need the loan guaranty to avoid violation of regulatory lending limits. Additionally, many banks desire to earn income by selling off the guaranteed portion of commercial loans on the secondary market as described above. The BIA loan guaranty does not afford this opportunity to banks and thus limits the capital available for Indian country. Remember, the BIA loan guaranty is the only one that will cover loans on tribal trust lands.
Recommendations
. BIA guaranty on tribal lands should be increased to 95%
. Separate non-shared collateral should be permitted to cover non-guaranteed percentage similar to the Title VI program
. During the approval process BIA should review and approve the lenders capacity for reporting and monitoring
. For lenders with approved reporting and monitoring, BIA assumes lenders reps and warrants for monitoring requirements during the life of the loan
. Increase staffing and improve technology across the country to accommodate the increased demand for TSRs, recording of land documents, surveys, environmental (particularly on allotted lands) and business loans
. Annually fund an adequate amount to meet the demand of the program
. Fix the guaranty so that the guaranteed portion of the loan can be sold in the secondary market
. Require the BIA to report semi-annually to this committee on the progress they have made to fix the many problems they are creating for tribal lending
HUD-184 Home Loan Program
Why there is a need for the program
. Housing related spending is estimated to be 17.6% of GDP. n1 Obviously, housing is a huge part of the U.S. economy.
. 1996-2003 study indicated 90,000-200,000 units were needed to house Native Americans who were homeless or lived in overcrowded or substandard dwellings. n2
. 41% of housing on reservations is considered inadequate, compared to 6% nationwide. n1
. The legislature deplored the fact that there are 90,000 homeless or under-housed Indian families, 30% of Indian housing is overcrowded and less than 50% is connected to a public sewer. n2
. About 40% of on-reservation housing is considered inadequate and living conditions on the reservations have been cited as "...comparable to Third World." n3
. Overcrowded homes, or homes with more than one occupant per room, are common on Native American lands. Of the homes on Native American lands, 8.8% are crowded compared to 3.0% nationwide. Although crowding is partially linked to stronger kinship ties that exist within Native American communities, it also highlights a serious shortage of safe, affordable housing. A 2006 study on homelessness on tribal lands in
. Homeownership is the single largest source of wealth creation for Americans. Fully 31% of American wealth is in home equity, and Americans of color have 61% of their wealth in home equity. n5
The Purpose of the Program
The purpose of HUD-184 Indian Home Loan Guarantee Program is to provide a home mortgage specifically designed for enrolled American Indians and Alaska Native families, Alaska Villages, tribes, or tribally designated housing entities. HUD-184 loans can be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home or refinance.
Because of the unique status of Indian lands being held in trust, Native American homeownership has historically been an underserved market. Working with an expanding network of the private sector and tribal partners, the HUD-184 Program endeavors to increase access to capital for Native Americans and provide private funding opportunities for tribal housing agencies with the HUD-184 Program.
Funds may be used for:
. Single Family to a quad-plex
. Construction
. Purchase
. Refinance
. Professional homes such as doctors, teachers, executives, etc.
. Retirement-senior independent living
. Group homes
. Supportive housing
. Student housing
Positive Aspects of the Program:
. Designed specifically to benefit Native America's access to capital for home ownership
.
. Loans are underwritten by the Lender and/or HUD-184 office
. Loan Guarantee Certificates are issued by ONAP on behalf of HUD
. Loans are made to enrolled Native Borrowers
. Guaranty is 100%, this encourages lenders to serve the Native communities
. This increases the marketability and value of the Native assets and strengthens the financial standing of Native communities
. Collateral consists of one real estate property per loan
. Single family up to a four-plex
. Homes can be on fee simple or tribal lands
. Loan terms and rates are similar to other
. Loans are credit qualifying assumable
. LTV is 97.25% with a 1.5% guarantee fee
. No prepayment penalties
Examples of HUD-184 Success Stories:
2-New Native American Multi Unit Home Projects
-465
-28 Low/Moderate and Senior housing projects. Another example was a project we completed building 7 quad-plexes in
Examples of Individual Home Loans
Late last year we completed a home loan for an Alaskan Native living above the
We have used the single close HUD-184 home loan to help Native Americans build homes on many reservations and on fee simple land.
We have closed thousands of home loans for Native Americans across the country.
Negative Aspects of the Program:
. Intermittent refinance opportunities
. Understaffing at ONAP
. Slow turn times for TSR's from BIA
. Slow turn times for LGC's
. Slow turn times on claims paid
. Program shutdowns
. Manual process / lack of technology from ONAP
Examples of HUD-184 Failures:
Moratorium of Refinancing
During the period from
This was a huge disservice to Native American borrowers. We have calculated that it cost, just our Native American customers approximately
We worked diligently with ONAP, congressional representatives,
Slow turn times for TSR's from BIA
In the
Slow turn times in the ONAP office paying claims
The claim filing process is a manual paper process. All submissions are sent via
Of the claims paid in 2013 and 2014, the average time of payment was 168 and 79 days respectively. HUD-ONAP commitment is to pay claims in 45 days.
Once a claim has been processed there is no reimbursement documentation sent to the lender. This is very confusing any time amounts are adjusted with no explanation.
Delays in processing claim payments and corrections to guarantees create problems with delinquency ratios and remaining in compliance with GNMA.
Compliance issues could affect GNMA's willingness to grant commitment authority which would hinder the lenders ability to lend to Native Americans.
Why it works and why it doesn't:
Why it Does Work:
ONAP has a dedicated and knowledgeable staff. They are small in numbers but great in commitment, expertise and tenure. The program has a 97.75% LTV and is 100% guaranteed loan for the lender. It is flexible enough to work well with the vastly different Native American housing programs, yet specific enough in its scope to avoid massive amounts of minutia. The staff understands the transactional side of a home purchase so most loans are able to close.
Why it Does Not Work:
ONAP is extremely understaffed, underfunded and is decades behind in technology. Lenders hear horror stories about their peers being stuck with loans on tribal lands on which they can't get LGC's or TSR's. This puts the lender at risk for a 100% loss on large loans. Banks can no longer assume such risk. The BIA is largely responsible for these problems.
The process is broken. It is still 100% manual from start to finish and is extremely labor intensive. In a highly regulated environment, banks are unwilling or unable to justify the extra employee expense and risk to offer the program.
Recommendations:
. Increase staffing for ONAP. There are very dedicated and knowledgeable staff currently at ONAP but there is zero chance to operate efficiently with the limited number of staff they have currently
. Invest in technology. It is difficult to understand why this remains one of the only loan programs that requires a complete manual process. Specifically, issuance of case numbers, loan guaranties and payment of claims
. Develop a better government to government process with ONAP, BIA and tribes for acquiring TSR's early in the loan process
. Require the BIA to provide TSR's on a timely basis consistent with what a title company would provide in the market place
. Require the BIA to report semi-annually to this committee on the progress they have made to fix the many problems they are creating for tribal lending
. Develop a better government to government process with ONAP, BIA and tribes for delinquent loans
. Allow proven lenders to "self-issue" firm commitments like FHA
. Allow proven lenders to "self-pay" claims - automate the case number process like FHA
ONAP Title VI Guaranteed Loan Program
Eligible Borrowers
. Tribes
. Tribal Housing Authorities
. THDE's that are recipients of NAHASDA Grant Funds
The Purpose of the Program
The purpose of the Title VI loan guarantee program is to assist IHGB recipients (borrowers) who want to finance additional grant-eligible construction or development at today's costs. Tribes can use a variety of funding sources in combination with Title VI financing, such as low-income housing tax credits. Title VI loans may also be used to pay development costs.
With the flexibility of the Title VI program, tribes can structure their loans to meet the requirements of their project and negotiate a variety of repayment terms with the lender. Loan terms can range up to 20 years, and payments may be made monthly, quarterly, or annually. Additionally, interest rates can be fixed, adjustable or floating, and are based on an index.
How Funds may be used:
. Low to moderate income housing
. Indian Housing Assistance
. Housing Development includes infrastructure, 1-4 units and multifamily
. Housing Services
. Housing Management Services
. Crime Prevention and Safety Activities
. Model Activities (with HUD approval)
Positive Aspects of the Program
Benefit tribes and lenders. Tribes benefit by building more housing at today's costs and using the loan to leverage additional funds from other sources and improved financial services from lenders and permit flexible financing terms. Additionally, tribes are not required to use land as collateral for loans.
Likewise, lenders benefit from administering Title VI loans. Some of these benefits include: limited risk exposure, reduced costs, increased loan marketability and improved opportunities to market financial services and credit towards meeting community reinvestment goals.
Guaranty is 95% the lender is allowed to collateralize an additional 5% with separate collateral that applies first to the lender. This is typically a Certificate of Deposit (or other cash deposit) resulting in a loan that is 100% covered and has minimum risk to the bank.
Collateral is the pledge of future IHBG funds. The tribe, housing authority or TDHE leverages IHBG funds to finance affordable housing activities today by pledging future grant funds as security for repayment of the guarantee obligation to HUD for their 95% guaranty. The lender is allowed to have additional collateral separate from the IHBG funds such as a CD for their 5% that is not guaranteed. This is negotiated with the tribe. The additional collateral is the only asset pledge to the loan.
Loan terms can be fixed rate and/or variable up to 20 years. Often the Construction period can be an adjustable rate and then fixed for the remaining amortization. Pre-payment penalties are allowed and typical. (Match funding) not assumable.
Examples of Title VI Success Stories
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Another example (in the discussion stages) is for senior housing on a reservation using the HUD-184 program. The concept includes several quad-plexes on adjoining lots. This loan format would be creating a senior community on the reservation using the lender's fund and not government funds. This approach allows all income levels to live in the senior housing units.
Negative aspects of the program
. Slow turn times from BIA for TSR's
. Narrow scope of the program
Why it Does Work:
HUD has a dedicated and knowledgeable employee that is devoted to the program. The program has a 95% guarantee and allows the lender to collateralize the additional 5%. Like the 184 it is flexible enough to work well with the vastly different Native American low income housing programs, yet specific enough in its scope to avoid massive amounts of minutia. There has never been a loss on a Title VI loan.
Why it Does Not Work:
The program is connected to low income housing and collateralized by NAHASDA funds. This puts the lender at risk on the guarantee if proper oversight and monitoring of NAHASDA reporting are not completed. Mixed use properties can be problematic if they serve non-low income members of the community. The program is too small. Since 1996 only 68 Title VI loans have funded. The need far outweighs this number.
Recommendations:
. More Tribal and Lender Training and Education
. Explore additional collateral sources other than NAHASDA funds including AR, investments, cash and or other chattel. The impact would allow tribes to expand the purpose of the program beyond affordable housing to include more traditional economic development.
Other General Recommendations
Environmental reviews are required on all loans on tribal lands in some form. Many of the tribes have environmental staff or departments trained to complete this requirement. However, on allotted lands it can fall to the BIA. This can create delays and additional expense to the borrower. The requirements are different for different agencies. More confusing are the different requirements for various regions of the same agency. Lenders and loan guarantee programs would benefit from standardized environmental requirements across all government lending agencies is needed.
BIA TSR issues affect all three programs upon which my testimony has touched. The problems created by the lack of speed and responsiveness of the BIA have a dramatically negative impact to the economic well-being of Indian country. It must be addressed and corrected. We believe without some sort of accountability the problem will not be corrected. We also believe market place Service Level Agreements (SLA's) should be established, monitored and real consequences should exist if SLA's are not met. This is too important. The BIA needs to get it right for Indian country and for lenders. Ask yourself this question: Would you put up with the issues the BIA creates?
Kill the Red Tape on issues that clearly make no sense and actually cost the American tax payers huge sums of money. Following are two loans that illustrate this point.
Examples
Another example is a HUD-184 single close home construction loan in
Clarity needs to exist regarding jurisdiction and recourse. Red tape and confusion are inherent to the homes on Native American lands. With the additional time and effort involved in dealing with these challenges, increased cost occurs with no offset other than capital that would otherwise be allocated to housing. Lenders are hesitant to provide loans when outcomes similar to the examples above or worse occur with no foundation of how to take appropriate action. ONAP must be free to have contingency plans for life. There are much better remedies to these issues than law suits that add considerably to customer and lender frustration, and to tax payer expenses.
Provide adequate funding for adequate staffing of programs. We feel most of the problems with the HUD-184 program stem from the ONAP office being under funded from a staffing standpoint. Without question the staff works hard and is dedicated to the program but there is only so much a handful of people can do. The program has grown but the staff level has not grown and thus it has created many problems as outlined in this testimony.
In the case of the BIA guaranteed lending program, we have reasons to believe that at least part of the problems have to do with limited staffing or staffing that is not dedicated to the loan program.
Conclusion
We are committed more than ever to meeting the capital needs of Native America. It is a worthy cause. We believe if the programs we have testified about were properly funded, staffed and held accountable, much of the access to capital problems in Indian country would be alleviated. We pray the Committee will take the appropriate steps to ensure these things are done.
I would like to express my sincere gratitude to the committee for allowing me to testify. This was a great honor and a unique opportunity.
n1
n2 Cooper, Kenneth J. Housing Shortage Forces Native Americans to Use FEMA Trailers, America's Wire Maynard Media Center on Structural Inequity, http://americaswire.org/drupal7/?q=content/housing-shortage-forces-native-americans-use-fema-trailers, Accessed:
n3 Native American Aid. Living Conditions, http://www.nrcprograms.org/site/PageServer?pagename=naa_livingconditions, Accessed:
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Read this original document at: http://www.indian.senate.gov/sites/default/files/upload/files/6.17.15%20Hill%20Testimony.pdf
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