Community Dividend

HUD 184 loan program helps Native Americans achieve homeownership

The HUD 184 loan program is designed to mitigate many factors that inhibit mortgage lending on American Indian reservations.

Deanna Lucero

Published April 1, 1998  | April 1998 issue

Part of the American Dream for many people is owning their own home. But for many tribal members living on Indian reservations, this dream has remained unfulfilled.

To open up home mortgage opportunities on reservations, the U.S. Department of Housing and Urban Development (HUD) created the HUD 184 Indian Home Loan Guarantee Program in 1994. From its inception through March 1998, HUD has issued firm commitments to guarantee 590 mortgage loans for individuals, families and tribes under this program. In the Ninth Federal Reserve District, HUD issued 111 firm commitments during these four years. Nationwide, about 35 lenders have used the 184 program as a mortgage investment tool in reservation communities. In the Ninth District, 10 banks have made loans using this program.

In this article, we take a brief look at the factors that have inhibited mortgage lending on Indian reservations. Next, we explain how the HUD 184 program addresses many of those factors and the role of the secondary market. Finally, we discuss limitations of the program and how innovative partnerships are simplifying the loan process.

Challenges of reservation mortgage lending

Lenders often cite certain challenges to making mortgage loans to tribal members living on reservations. The challenges that have inhibited mortgage lending on reservations arise out of many factors: the trust relationship between tribes and the federal government, tribal attitudes toward land, the thin housing markets in many of these communities, the lack of down payment funds and credit histories for many tribal members, and the use of tribal laws and legal structure to enforce contracts.

The federal government holds in trust approximately 55 million acres of land for the benefit of tribes and individual Indians. The land held in trust for the tribes cannot be mortgaged. While land held in trust for individual tribal members can be mortgaged, such mortgages require the permission of the federal Bureau of Indian Affairs (BIA). The BIA has supreme authority over trust land alienation dating back to treaties between the federal government and Indian tribes. The bureau is charged with ensuring that trust land remains in trust.

The duty of protecting trust lands is not taken lightly, according to Cora Jones, area BIA director in South Dakota. She says that when the BIA approves a mortgage, "We perform a second approval process, making sure that repayment is feasible. Many [people] are not aware that trust lands can be lost through foreclosure. It is our responsibility to prevent that."

Tribes, too, are concerned about the possibility of foreclosure. Many Indian people consider their land to be one of their most valuable resources, not just for the economic benefit the land can bring, but also because it serves as a tie to past and future generations. Since reservations were originally established, a significant portion of reservation land has passed out of the control of the tribes or tribal members. Tribes generally are wary of any transaction, including a home mortgage, that would put Indian control of the lands at risk. Consequently, tribes often discourage mortgages on individual trust lands unless mechanisms are in place to ensure that any foreclosed properties will be offered back to the tribe or tribal members.

Another issue impeding mortgage lending on reservations is the difficulties in performing appraisals. In many of these communities, home purchases are infrequent. Therefore, the appraiser has few comparable purchases on which to base valuation.

Additionally, many tribal members do not have sufficient cash for a down payment and mortgage loan closing costs. Also, many tribal members do not have a credit history. Finally, lenders are often unfamiliar with tribal court procedures and unclear as to procedures to be used in cases of default or foreclosure. On some reservations, tribes have not developed the legal infrastructure necessary to handle mortgage loans.

Ninth District lenders that have used the HUD 184 Program

Billings Federal Credit UnionBillings, Montana
Blackfeet National BankBrowning, Montana
Community First National BankFargo, North Dakota
Firstar Bank WisconsinMinocqua, Wisconsin, office
Firstar Home Mortgage Corp.Bloomington, Minnesota
Glacier Bank, FSBKalispell, Montana
Norwest Mortgage Co.Pierre, South Dakota, office
Ronan State BankRonan, Montana
Traverse Mortgage Corp.Traverse City, Michigan
Valley Bank of RonanRonan, Montana

One solution: The HUD 184 Indian Home Loan Guarantee Program

To address these concerns, HUD devised its 184 mortgage loan program to finance the purchase, construction or rehabilitation of one- to four-family homes. These homes must be occupied by a tribal member and located on trust land or in an "Indian area" to qualify for the program. HUD 184 loans may be made to individual Indians or to tribal housing authorities for resale to tribal members.

The program offers many benefits. Specifically, HUD provides a 100 percent guarantee for the outstanding loan balance. Closing costs and down payment assistance may come from grants or gifts or the closing costs may be financed as part of the loan. No mortgage insurance is required, and title insurance is required only for homes on fee simple land in Indian areas. Furthermore, HUD allows loan-to-value ratios up to 100 percent of the lesser of the purchase price or appraised value. HUD will also accept cost-based appraisals and allow flexible underwriting standards. For example, in absence of a credit history, a bank may use proxies such as rent or utility payments when underwriting the credit application.

To enhance customer service and streamline processing, in 1998 HUD will initiate a direct guarantee to allow lenders the choice of underwriting the loan or forwarding it to the underwriting staff of the national Office of Native American Programs (ONAP).

Since tribal trust land cannot be mortgaged, the program calls for a lease to be established for the land, with only the improvements (e.g., house or mobile home) mortgaged.

HUD requires that tribal governments take steps to certify the reservation for participation in the program. The tribal government must:

  • enact and agree to enforce foreclosure laws or agree to follow state foreclosure procedures;
  • enact and agree to enforce eviction procedures; and
  • enact tribal law or follow state laws ensuring the 184 loan will be a first lien.

In case of default or foreclosure, the federal government absorbs the responsibility of acquiring the mortgaged property and keeping the land ownership intact. Through the involvement of the federal government and the use of leases for tribal trust land, the tribe and the homeowner are confident that the land will not be removed from tribal trust status or sold to an individual who is not a tribal member.

Program limitations

While the HUD 184 mortgage loan program offers many benefits, it does have its limitations. A primary limitation is that HUD will not allow a 184 loan to be refinanced. This means that a homeowner with a 184 loan cannot refinance a higher interest rate down to a lower rate, which could cost the homeowner tens of thousands of dollars in interest payments over a 20- or 30-year period. (In the current low-rate environment, this inability to refinance is not a concern. If rates rise, however, it could be.) Another drawback for borrowers with equity in their homes is that they cannot refinance to obtain the equity and use it for other purposes, such as education or home improvements.

It is important to note that individual borrowers must be "recognized as Indian" by a tribe or federal or state government to obtain a mortgage loan through the HUD 184 program. And while there are no borrower income limits, there is a maximum mortgage amount. Finally, unlike traditional mortgage loan products, the 184 guarantee program does not allow for adjustable rate or reverse mortgages.

People are talking

The HUD 184 Indian Home Loan Guarantee Program has prompted enthusiasm among those who use and facilitate it. Here's a sample of what some people are saying.

A tribal representative: Jerry Matthews, housing authority counsel on the Pine Ridge Indian Reservation, played a key role in implementing procedures that facilitate HUD 184 loans on his reservation in southwestern South Dakota. Matthews helped the tribal housing authority enact the laws HUD requires before it makes the 184 loans. Matthews says, "I see this as a blessing for the reservation. Just the hint that a home mortgage is now possible on trust land has sparked tremendous interest from reservation residents with families and housing needs. This increased activity has led to the creation of a one-stop shop at the Pine Ridge Housing Authority for borrowers who want help obtaining a mortgage loan. The one-stop shop, among other services, provides credit counseling and assistance with preparation of the mortgage application."

A lender: Valley Bank of Ronan, Ronan, Mont., has made two HUD 184 loans, both for the construction of new homes on the Flathead Indian Reservation in northwestern Montana. Assistant Vice President Milanna Atwood, who is the bank's real estate lending officer, said it was not difficult to close the loans and that they were typical of any type of government-guarantee program. Atwood worked on these loans with the HUD's Office of Native American Programs, based in Denver, and she found the staff helpful. Valley Bank of Ronan used a first-time home buyers program offered by the Montana Board of Housing (MBOH) in conjunction with the HUD 184 program. Under this program, the buyers received 25-year loans with a 6 percent interest rate. The loans were then sold to MBOH, and the bank kept the servicing portion. Atwood said that the bank would like to make more HUD 184 loans, noting that "This program is helpful because a bank can sell the loans on the secondary market and not have to keep them on its books."

The secondary market

Because of the anomalies of making mortgage loans in Indian Country, such loans used to be considered unsaleable. This meant that the lender was faced with two choices: not making the loan or keeping a long-term asset on its books. However, access to the secondary market is key to making mortgages as readily available on reservations as they are in the rest of the nation.

HUD 184 loans are purchased by, among other organizations, the Federal National Mortgage Association (Fannie Mae). According to Ken Goosens, business manager for Native American loan programs at Fannie Mae, purchases of HUD 184 loans have increased during the past four years. On a national basis, Fannie Mae has purchased more than 300 HUD 184 loans, working with 52 tribes in 16 states. In the Ninth Federal Reserve District, Fannie Mae has purchased about 60 loans.

Fort Berthold Indian Reservation

This attractive home on the Fort Berthold Indian Reservation was the first home financed through the North Dakota Housing Finance Agency's HUD 184 mortgage loan program partnership.

Innovative partnerships

To further the use of the HUD 184 loan program in the Northern Plains, a national mortgage company and a state housing authority have each formed partnerships designed to simplify loan processing.

In one partnership, Norwest Mortgage in South Dakota and the Aberdeen BIA area office are working together to cut down administrative delays that frustrate lenders and increase the cost per transaction.

According to Jones, the BIA's area director, "It really was as simple as attaching the title status report, which contained the legal description, to the mortgage application. Before, all legal descriptions were typed onto the application, and errors took place, which resulted in applications being sent back and forth between the area BIA office and the national BIA office." She explains, "When you deal with rural land transactions, legal descriptions can get long and errors do happen. With the exact legal description attached to the application, we save a few steps." The process, scheduled to begin once the BIA in Washington, D.C., grants approval, should sharply decrease the time involved in approving a HUD 184 loan.

In another partnership, the North Dakota Housing Finance Agency (NDHFA) has teamed with Fannie Mae and a local bank to reduce the amount of processing required by the bank. NDHFA is the first housing finance agency in the country to sign an agreement with Fannie Mae allowing the agency to sell and service HUD 184 loans directly.

The key person in this one-of-a-kind program is Patrick Fricke, the agency's executive director. Fricke and his staff recognized a problem existed in the delivery of affordable rural housing, so the agency created a pilot program in 1992 called the Application Processing Service. For a fee, the agency will handle the mortgage process from start to finish: underwriting, preparing the loan-closing documents and preparing the loan for sale on the secondary market. The bank takes the original application and closes the loan. By working with Fannie Mae, the agency serves as a conduit into the secondary market for small lenders. Fricke says, "Bankers are in the business of developing customer relationships, and we provide affordable housing. To me that is a workable partnership."

The first HUD 184 loan was closed under this program in August 1997. The loan was made to an individual tribal member on the Fort Berthold Indian Reservation by Community First National Bank, Dickinson, N.D. Since then, the bank has received three other loan requests that are in various stages of completion.

The loan officer responsible for the initial transaction is Deb Kudrna, who also is the main contact for the other mortgage loans in process. The relationship began after Kudrna attended a workshop sponsored by NDHFA last year. Kudrna says, "Fannie Mae was looking for a partner that would service purchased loans and it struck a relationship with NDHFA. The agency would service the loans, but it needed a partner to originate the mortgage loans. That is where we became involved." She adds, "We're not in this for self-gratification. There is a tremendous need for housing on the Indian reservations in North Dakota, and this is one way of helping Native Americans become homeowners."

With only a few hundred loans made, the HUD 184 loan program is still in its infancy. The good news is that government agencies, tribes, banks and the secondary market are working together to make homeownership a reality and not just a dream for tribal members.

Thomas Moore is a Community Affairs management analyst for the Federal Reserve Bank of Minneapolis.

Margaret Tyndall is the Community Affairs manager for the Federal Reserve Bank of Minneapolis.


Deanna Lucero is Native American Program Specialist for HUD's Office of Guarantee, Office of Native American Programs, Denver.


Section 184 Indian Home Loan Guarantee Program Final Guidebook, March 18, 1996, U.S. Department of Housing and Urban Development.

Native American Housing Loan Guarantee Program, 1996, Federal National Mortgage Association.